Analysts’ Reputational Concerns, Self-censoring and the International Dispersion Effect

Management Science Forthcoming

36 Pages Posted: 2 Jul 2012 Last revised: 14 Feb 2017

See all articles by Chuan-Yang Hwang

Chuan-Yang Hwang

Nanyang Technological University (NTU)

Yuan Li

University of Cambridge - Judge Business School; University of Cambridge - Cambridge Endowment for Research in Finance (CERF)

Date Written: August 12, 2016

Abstract

Stocks with higher forecast dispersion earn lower future returns and have a greater upward bias in the mean reported earnings forecast in the international markets. Both phenomena are stronger in countries with more transparent information environments, more developed stock markets, stronger investor protection, greater capital openness, and more intense usage of analysts’ earnings forecasts. Using the 1997-98 Asian financial crisis as a natural experiment, we find that both phenomena become weaker post crisis in Malaysia, which imposed capital controls, relative to Thailand and South Korea, which opened up their financial markets to foreigners. These results suggest that analysts in countries with greater demand for their forecasts and hence greater concerns for reputations are more likely to self-censor their low forecasts, which leads to a stronger dispersion-bias relation and a stronger dispersion effect.

Keywords: analysts’ incentives; analysts’ reputational concerns; self-censoring; the dispersion effect; international markets

JEL Classification: G12, G15, G24

Suggested Citation

Hwang, Chuan-Yang and Li, Yuan, Analysts’ Reputational Concerns, Self-censoring and the International Dispersion Effect (August 12, 2016). Management Science Forthcoming. Available at SSRN: https://ssrn.com/abstract=2097472 or http://dx.doi.org/10.2139/ssrn.2097472

Chuan-Yang Hwang

Nanyang Technological University (NTU) ( email )

Singapore, 639798
Singapore
65-67905003 (Phone)
65-6791-3697 (Fax)

Yuan Li (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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