Will the Government Intervene in the Local Analysts’Forecasts? Evidence from Financial Misconduct in Chinese State-Owned Enterprises

52 Pages Posted: 4 Feb 2024

See all articles by Siyi He

Siyi He

Sichuan University

Qinglu Jin

Shanghai University of Finance and Economics

Yipin Yu

Shanghai University of Finance and Economics

Abstract

This paper explores the impact of government intervention on local analysts’ earnings forecasts, based on a scenario of financial misconduct in Chinese state-owned enterprises (SOEs). The results show that, under the influence of the government, local analysts’ earnings forecasts for SOEs with financial misconduct are less accurate and more optimistically biased. Further heterogeneity analysis reveals that forecast bias by local analysts is greater when officials have stronger promotion incentives, when regions are less market-oriented and have a larger share of the state-owned economy, and when SOEs contribute more to taxation and employment. In further analysis, we find that local analysts have a more optimistic tone in reports targeting non-compliant SOEs. Local analysts who depend heavily on political information will also issue more biased and optimistic forecasts on SOEs with violations. Finally, as a reward for achieving government goals, the local brokerages affiliated with these analysts and providing these optimistic forecasts are more likely to become underwriters in seasoned equity offerings of SOEs. This paper reveals that government intervention significantly influences analyst forecasts, providing implications for understanding the sources of analyst forecast bias.

Keywords: Local Analysts, Forecast Bias, Local Government, State-owned Enterprises, Financial Misconduct

Suggested Citation

He, Siyi and Jin, Qinglu and Yu, Yipin, Will the Government Intervene in the Local Analysts’Forecasts? Evidence from Financial Misconduct in Chinese State-Owned Enterprises. Available at SSRN: https://ssrn.com/abstract=4716078 or http://dx.doi.org/10.2139/ssrn.4716078

Siyi He

Sichuan University ( email )

No. 24 South Section1, Yihuan Road,
Chengdu, 610064
China

Qinglu Jin

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China
86-21-65908982 (Phone)

Yipin Yu (Contact Author)

Shanghai University of Finance and Economics ( email )

NO. 777 Guoding Road
Shanghai, 200433
China

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