The Research Of Analyst Earnings Forecasts Based On Industrial Policy In China

After a decade of development, China’s securities analyst industry has grown from a disordered industry to an orderly one and has been playing an important part in disseminating market knowledge, guiding investment concept and motivating market innovations. Securities investment consulting agencies have made great progress in terms of mode of operation, level of management and institutional building. However, compared with the mature markets of the developed countries, the overall level of China’s securities analyst industry is still relatively backward. This is reflected in the following two aspects:(a) Analytical methods:mainly technical analysis tools, and almost no theoretical models or statistical forecasting methods;(b) access to information:securities analysts in China seldom obtain information from the listed companies via direct contact such as a company press conference, telephone conversations or face-to-face interviews, they tend to be more concerned about the simple and easy public information, among which securities analysts focus on policy information. Why do China’s securities analysts pay so much attention to policy information? How does policy information influence the decision-making and behavior of securities analysts? How does securities analysts’concern about policy information affect their forecast performances? And how does the concern affect securities analysts? In order to answer these questions, this paper carries out theoretical analysis and empirical testing of analysts’earnings forecasts, with industrial policy as the entry point.Firstly, taking the special institutional background under the transitional economy of China into account, this paper has done a systematic reality review of the establishment and implementation of industrial policy with Chinese characteristics and an in-depth theoretical discussion on the necessity and contradiction of China’s industrial policy. As the primary means of economic structural adjustment, industrial policy is an important aspect of the current macro-control of our government. As a highly integrated policy instrument, industrial policy is an industry-specific sum of policies established to achieve certain economic and social objectives. As an indirect control, it fully combines the advantages of a planned economy and market regulations, helping the government achieve effective macro-control while the planned regulation and control significantly reduces. The role of industrial policy on economic development is mainly focused on promoting economic growth on industrial level, thus in the economic take-off stage, the influence of industrial policy is particularly evident, and the need for economic development is particularly significant, and thus it is of great importance among the entire government economic policy system. In addition, a developing country often encounters infrastructure and basic industries "bottleneck" restrictions in the early stage of the economic "take-off". They need massive investment, their payback periods are lengthy and they stimulate economic development. These fields are of obvious "externalities", which are difficult to be resolved in the short term, thus require the tilt and support of industrial policy in order for them to play a role in promoting the economic takeoff. However, due to the inherent contradictions of industrial policy, such as the promotion of the Industrial Structure contradicts and ease of the pressure on domestic employment, giving full play to domestic comparative advantage contradicts the enhancement of international competitive advantage, establishing a relatively complete national economic system contradicts actively participation in the international division of labor and the contradiction between the domestic industrial policy tilt and fairness required by international economic rules. Policy makers are often in dilemma and find it difficult to make a choice, hence the vacillation of policies, rendering a non-guaranteed industrial policy effect. In the context of China’s "policy market", the influence of the wavering industrial policies on China’s securities market cannot be ignored. And this has prompted China’s securities analyst to increase the proportion of industrial policy in their working models.Secondly, based on the logic line of government actions influence enterprise actions, enterprise actions influence enterprise value, analysts focus on enterprise value, this paper has done a theoretic analysis on analysts’ concern about industrial policy and subsequent adjustments of their earnings forecast based on the industrial policy. Government macro-control of the economic development through macroeconomic policies and government control has been a common phenomenon. In fact, government intervention in economic life constitutes an important feature during the transition period of China’s socialist market economy. As a major player in economic activity, enterprises are the micro carriers of the government’s macroeconomic policies, government regulation and other means. Government guide enterprises’ actual production operators such as business decisions, behavior and so on, to affect the economic indicators such as employment and output. Fiscal policies affect the total social demand and supply mainly through the income and expenditure tools, and thus affecting the macroeconomic level, and affect corporate finance, investment and operational activities through the two intermediate variables of quantity and price, then ultimately affect the company’s cash flow; The impact of the currency policy on micro-enterprises are mainly reflected in financing activities, including financing costs and financing scale; Industrial policy, fiscal policy and monetary policy are parallel policies, which are the means and tools of the national macro-control. Points and policy instruments of industrial policy, however, are bound to involve fiscal policy, monetary policy, especially tax measures and credit policy. Therefore, industrial policy to some extent are considered as a concrete implementation of the tax incentives, financial subsidies and other government actions in a certain industry, thus affecting enterprise actions; At the same time, there does exist a complex relationship and impact mechanism between corporate behavior and corporate value. Further, all kinds of government actions are of important value to micro-enterprises behaviors, as a result, government actions including macroeconomic policy, direct control are bound to affect corporate value. Thus there is internal logical association between government action and company value; as such the crowds who are most concerned about enterprise value, the securities analysts take policy research as important study on China’s market.Furthermore, this paper has tested the above theory through empirical test. The paper uses five years’ data from2006to2010as the research sample, industrial policy as an explanatory variable to study analysts’ earnings forecasts. Findings show that when analysts do earnings forecasts, they give a great deal of concern to companies with industrial policy; this indicates industrial policy is an important entry in analysts’ work models. However, although analysts prefer to track companies with industry policy and issue earnings forecasts more frequently, their earnings forecasts deviation was greater with optimistic tendencies, this indicates the output is not effective; The reason is that in order to obtain a lot of commission income and stimulate greater trading volume, analysts are more motivated to follow companies with policy. The findings show that securities analysts choose to track a company with industrial policy, and give significantly positive earnings forecasts for these companies to stimulate trading volume for better commission income. This is another way of saying, the lack of analyst reputation return mechanism results in analysts’pursuit of interests, and blind exaggeration of the future earnings of the tracked enterprise, without having to worry about their own career. Therefore, this paper proposes to establish and improve the reputation of the analyst industry return mechanism, to provide a guarantee for the healthy and regulated development of China’s securities analyst industry.