Strategic Distortions in Analyst Forecasts in the Presence of Short-Term Institutional Investors

Accounting and Business Research, forthcoming

52 Pages Posted: 18 Mar 2015 Last revised: 17 Jun 2018

See all articles by Pawel Bilinski

Pawel Bilinski

City University London - Sir John Cass Business School

Douglas J. Cumming

Florida Atlantic University

Lars Helge Hass

Lancaster University - Management School; University of Iowa - Henry B. Tippie College of Business

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Date Written: June 12, 2018

Abstract

We document that analysts cater to short-term investors by issuing optimistic target prices. Catering dominates among analysts at brokers without an investment banking arm as they face lower reputational cost. The market does not see through the analyst catering activity and their forecasts lead to temporary stock overpricing that short-term institutional investors exploit to offload their holdings to retail traders. We also report evidence consistent with catering brokers being rewarded with more future trades channelled through them. Our study identifies a new source of conflicts of interest in analyst research originating from the ownership composition of a stock.

Keywords: Target prices; Earnings forecasts; Strategic distortions; Short-term investors

JEL Classification: G14; G24; G29; D82; D83

Suggested Citation

Bilinski, Pawel and Cumming, Douglas J. and Hass, Lars Helge and Stathopoulos, Konstantinos and Walker, Martin, Strategic Distortions in Analyst Forecasts in the Presence of Short-Term Institutional Investors (June 12, 2018). Accounting and Business Research, forthcoming, Available at SSRN: https://ssrn.com/abstract=2579576 or http://dx.doi.org/10.2139/ssrn.2579576

Pawel Bilinski (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Lars Helge Hass

Lancaster University - Management School ( email )

Department of Accounting and Finance
Lancaster, LA1 4YX
United Kingdom

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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