Analysts' Conflicts of Interest and Biases in Earnings Forecasts (original) (raw)

Journal of Financial and Quantitative Analysis, 2007

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' conflicts of interest and their in- centives to strategically adjust forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises and related changes in the market's response to surprises and forecast revisions. The evidence for shifts is stronger for growth stocks, where conflicts of interest are more pronounced. However, shifts are less notable for ana- lysts without ties to investment banking and in international markets.

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