The Superiority and Disciplining Role of Independent Analysts

48 Pages Posted: 19 Jul 2007 Last revised: 15 May 2008

See all articles by Jian Xue

Jian Xue

Tsinghua University - School of Economics & Management

Zhaoyang Gu

Chinese University of Hong Kong - School of Accountancy

Abstract

We show that although forecasts of independent analysts are less accurate ex post, they yield forecast errors that are more strongly associated with abnormal stock returns. This suggests that forecasts of independent analysts are superior to those of nonindependent analysts in representing ex ante market expectations. We also show that forecasts of nonindependent analysts become more accurate and less biased, and produce forecast errors more strongly associated with abnormal stock returns when independent analysts are following the same firms than when they are not. This suggests that the presence of independent analysts disciplines the behavior of nonindependent analysts.

Keywords: Financial analysts, analyst independence, forecast accuracy and bias, earnings response coefficients, Global Research Analyst Settlement

JEL Classification: G28, G29, M41, M43

Suggested Citation

Xue, Jian and Gu, Zhaoyang, The Superiority and Disciplining Role of Independent Analysts. Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1000820 or http://dx.doi.org/10.2139/ssrn.1000820

Jian Xue

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Zhaoyang Gu (Contact Author)

Chinese University of Hong Kong - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

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