Government Shareholdings in Brokerage Firms and Analyst Research Quality

53 Pages Posted: 14 Mar 2018 Last revised: 11 Jun 2021

See all articles by Sheng Cao

Sheng Cao

Tongji University

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy

Charles C. Y. Wang

Harvard Business School (HBS)

Huifang Yin

Shanghai University of Finance and Economics

Date Written: June 3, 2021

Abstract

We examine how government ownership in brokerage firms influences analyst research quality in the Chinese context. When the government has strong incentives to prop up market prices, analysts from brokerages with significant government shareholdings ("government-brokerage analysts") issued relatively less pessimistic (or more optimistic) earnings forecasts and revisions and more favorable stock recommendations; they were also slower to revise. Although less accurate than those issued by other brokerages, these forecasts significantly influenced investors' beliefs. During regular times, government-brokerage analysts issued relatively less optimistic (more pessimistic) earnings forecasts and revisions and less favorable stock recommendations; they were also quicker to revise and no less accurate than those by other brokerages. Government-brokerage analysts thus balance market credibility against government incentives. In doing so, they serve both market advisory and stabilization functions. We show that their market stabilization function also operates during times of high investor sentiment.

Keywords: Sell-side analysts; Forecast optimism; Forecast accuracy; Government ownership; Shareholders; Emerging markets; Coordinated economies

JEL Classification: G14; G24; G28; O16

Suggested Citation

Cao, Sheng and He, Xianjie and Wang, Charles C. Y. and Yin, Huifang, Government Shareholdings in Brokerage Firms and Analyst Research Quality (June 3, 2021). Harvard Business School Accounting & Management Unit Working Paper No. 18-095, Available at SSRN: https://ssrn.com/abstract=3140069 or http://dx.doi.org/10.2139/ssrn.3140069

Sheng Cao

Tongji University ( email )

1239 Siping Road
Shanghai, 200092
China

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Charles C. Y. Wang (Contact Author)

Harvard Business School (HBS) ( email )

Soldiers Field
Boston, MA 02163
United States

Huifang Yin

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
530
Abstract Views
3,254
rank
64,025
PlumX Metrics