Market Advisor or Government Mouthpiece: The Role of Sell-Side Analysts in Emerging Markets

46 Pages Posted: 14 Mar 2018 Last revised: 28 Sep 2019

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

Huifang Yin

Shanghai University of Finance and Economics

Date Written: September 25, 2019

Abstract

During times when the Chinese government wished to prop up the market, sell-side analysts from brokerages with significant government ownership issued relatively less pessimistic (or more optimistic) earnings forecasts, earnings-forecast revisions, and stock recommendations; they were also slower to revise. Although less accurate, these forecasts significantly influenced investors' beliefs. Overall, the evidence is consistent with analysts' temporary compliance with government incentives, especially those with more expertise or fewer outside options. Our findings highlight the dual-role of sell-side analysts in emerging market contexts and how their information production may be compromised at times of economic uncertainty.

Keywords: Sell-Side Analysts; Forecast Optimism; Forecast Accuracy; Government Incentives; 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, Market Advisor or Government Mouthpiece: The Role of Sell-Side Analysts in Emerging Markets (September 25, 2019). 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 ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Huifang Yin

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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