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
Date Written: September 25, 2019
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: Suggested Citation