Finance Department's Lecture

Theme：Government Incentives and Financial Intermediaries: The Case of Chinese Sell-Side Analysts

Speaker：Xianjie HE

Time：2019-04-10 10:00

Address：Room 1008, Mingde Business Building

Language：Chinese

ABSTRACT:
We study how sell-side analysts produce information in a context where the government can influence financial intermediaries. Leveraging seven economic periods between 2005 and 2015 when the government had strong incentives to prop up the stock market, we show that sell-side analysts employed at state-owned brokerages issued relatively optimistic earnings forecasts and stock recommendations during these periods. This relative optimism is particularly pronounced in earnings forecasts for larger firms and for state-owned enterprises, and is found regardless of analysts’ experience or star status, or of their brokerages’ degree of dependence on commissions. Although these optimistic forecasts are also relatively less accurate, the evidence suggests that they influence investors’ beliefs. These findings highlight the role of government incentives in the behavior and output of analysts in emerging-market contexts.