48 Pages Posted: 8 Mar 2003 Last revised: 1 Nov 2010
Date Written: March 2003
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: 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