The Optimism and Accuracy of Bank-Affiliated Analysts’ Forecasts

Spanish Journal of Finance and Accounting, 2019

40 Pages Posted: 17 Dec 2019

See all articles by Kyojik Song

Kyojik Song

Sungkyunkwan University

Jong Eun Lee

SUNGKYUNKWAN UNIVERSITY; Department of Accounting

Hyunseok Kim

Sungkyunkwan University

Date Written: December 1, 2019

Abstract

This paper studies the effect of commercial bank affiliation on analysts’ forecasts using the Korean data over the 2000-2015 period. We find that the median EPS forecast error of 2.88% made by independent analysts is significantly larger than the median error of 2.47% made by bank-affiliated analysts. The difference in the optimism and accuracy of independent vs. bank-affiliated analysts is significant only for non-chaebol companies. We also find that capital markets respond to more positively (or more negatively) to stock recommendation changes that bank-affiliated analysts make, and that the responses are larger for non-chaebol companies. The results are consistent with our conjecture that bank-affiliated analysts make more informative forecasts by sharing the information generated by commercial banks under bank conglomerates, their information advantage is salient for non-chaebol companies, and capital markets give value to the information advantage.

Keywords: universal banking, analysts’ forecasts, stock recommendation, bank-affiliated analysts, business group

JEL Classification: G30, G17, G29

Suggested Citation

Song, Kyojik and Lee, Jong Eun and Kim, Hyunseok, The Optimism and Accuracy of Bank-Affiliated Analysts’ Forecasts (December 1, 2019). Spanish Journal of Finance and Accounting, 2019 , Available at SSRN: https://ssrn.com/abstract=3496077 or http://dx.doi.org/10.2139/ssrn.3496077

Kyojik Song (Contact Author)

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)
82-2-760-0497 (Phone)

Jong Eun Lee

SUNGKYUNKWAN UNIVERSITY ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)

Department of Accounting ( email )

53 Myeongnyun-dong 3-ga Jongno-gu
#418 Business School Building
Seoul, 110-745
Korea, Republic of (South Korea)

Hyunseok Kim

Sungkyunkwan University ( email )

206 International Hall
Seoul 110-745, 110-745
Korea, Republic of (South Korea)

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