Which Types of Analyst Firms Make More Optimistic Forecasts?

52 Pages Posted: 27 Aug 2003

See all articles by Amanda Cowen

Amanda Cowen

Harvard Business School

Boris Groysberg

Harvard Business School

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Date Written: July 8, 2003

Abstract

Research optimism among securities analysts has been attributed to incentives provided by underwriting activities. We examine how analysts' forecast optimism varies with the business activities used to fund research. We find that analysts at firms with underwriting and trading businesses are actually less optimistic than those at pure brokerage houses, who perform no underwriting. The relatively less optimistic forecasts for underwriting firms are not fully explained by bank reputation. Nor is the relative optimism of brokerage firms explained by the types of clients they serve (retail or institutional). We conclude that sales and trading activities used to fund research create strong incentives for analyst optimism.

Keywords: Analyst Forecast Optimism, Analysts' Incentives, Types of Security Firms, Earnings Forecasts, Target Prices

JEL Classification: M41, G14, G29

Suggested Citation

Cowen, Amanda and Groysberg, Boris and Healy, Paul M., Which Types of Analyst Firms Make More Optimistic Forecasts? (July 8, 2003). Harvard NOM Working Paper No. 03-46. Available at SSRN: https://ssrn.com/abstract=436686 or http://dx.doi.org/10.2139/ssrn.436686

Amanda Cowen

Harvard Business School ( email )

Morgan Hall 328
Soldiers Field
Boston, MA 02163
United States
617-496-2844 (Phone)

Boris Groysberg

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-496-2784 (Phone)
617-496-5271 (Fax)

Paul M. Healy (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-1283 (Phone)
617-496-7387 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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