Government Incentives and Financial Intermediaries: The Case of Chinese Sell-Side Analysts
44 Pages Posted: 14 Mar 2018 Last revised: 3 Jun 2019
Date Written: May 31, 2019
We study how sell-side analysts are influenced by government incentives in emerging markets. Leveraging six economic periods between 2005 and 2015 when the Chinese government had strong incentives to prop up the market, we show that analysts from state-owned brokerages issued relatively optimistic earnings forecasts, earnings-forecast revisions, and stock recommendations during these periods; they were also slower to revise. They did so not because of superior information, but to comply with government incentives. These forecasts were less accurate but influenced investors' beliefs. These findings highlight the relative usefulness of analysts' output at times of economic uncertainty in coordinated-economy contexts.
Keywords: Sell-Side Analysts; Forecast Optimism; Forecast Accuracy; Government Incentives; Emerging Markets; Coordinated Economies
JEL Classification: G14; G32; K22
Suggested Citation: Suggested Citation