Does the Analyst’s Salary Affect Forecast Accuracy? Evidence From China

Abstract

Using the data from 2011 to 2017, this paper exploits the effect of analyst’s salary on forecast accuracy. The result shows that after the implementation of salary ceiling,the analysts of state-owned broker issues more accurate earning forecast than the analysts of non-state owned broker. Further analysis finds that when the brokers’ underwriting fee is higher and scale is smaller, the analysts of this broker provide more accurate forecast after the implementation of salary ceiling. Finally, this paper also considers the effect of reputation mechanism. The empirical results indicate that, when the competition among analysts is more intensive and the analysts are star analyst, the forecast of state-owned broker is more accurate after the implementation of salary ceiling.

Keywords: analyst forecast; salary ceiling; forecast accuracy