Analysts' Conflict of Interest and Biases in Earnings Forecasts

48 Pages Posted: 8 Mar 2003  

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Jason J. Karceski

LSV Asset Management

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2003

Abstract

Analysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflict of interest and their incentives to adjust strategically forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises, the market's response to surprises and forecast revisions, and in the predictability of non-negative surprises. Further confirmation is based on subsamples where conflicts of interest are more pronounced, including growth stocks and stocks with consecutive non-negative surprises; however shifts are less notable in international markets.

Suggested Citation

Chan, Louis K.C. and Karceski, Jason J. and Lakonishok, Josef, Analysts' Conflict of Interest and Biases in Earnings Forecasts (March 2003). NBER Working Paper No. w9544. Available at SSRN: https://ssrn.com/abstract=386173

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Jason J. Karceski

LSV Asset Management ( email )

155 N Wacker Dr.
Chicago, IL 60654
United States
352-246-7674 (Phone)

Josef Lakonishok (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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