The Impact Of Fund 's Position On Analysts And Its Economic Consequences

With the rapid development of the Chinese capital market, security analysts (hereinafter referred to as analysts) play a more and more significant part as information intermediary of securities market. By gathering, processing and transferring information, analysts decrease information asymmetry degree and improve resource allocation efficiency. Securities investment funds (hereinafter referred to as funds) are the main institutional customers that analysts serve. When funds consume analysts’ services, whether security investment behaviors have an impact on analysts’behavior is one of the hotspot in both accounting and capital market research. Considering the background of Chinese system, this paper studies the effects of funds’ heavily holding stocks on analysts’behavior and the corresponding economic consequences.This paper firstly studies the effects of funds’heavily holding stocks on analyst following. From the two aspects of analyst accessing and transferring information, this paper specifically examines the differences in analyst site-visiting, analyst coverage and the number of analyst reports between bulk-holding stocks and non-bulk-holding stocks. It also examines the economic consequences of funds’ heavily holding stocks on analysts’behavior. Using stock price synchronicity to measure the quality of information which analysts transfer effected by funds’heavily holding stocks. Secondly, based on the theory of conflict of interest, it researches how bulk-holding stocks influence analyst recommendation, tests whether analysts hold more favor to bulk-holding stocks and whether the optimism of analyst recommendation varies in accordance with the number of bulk-holding stock funds. Moreover, it also takes response using long window to test whether bulk-holding stocks have an effect on analyst recommendation’s efficiency.The research of this paper finds:On one hand, as funds demand more bulk-holding stocks information, it promotes analysts working harder and increasing the supply of information, which manifests specifically that compared to non-bulk-holding stocks, it is more likely for analysts to site visit, more analysts coverage and publish reports for bulk-holding stocks, with the amounts of analyst following and reports increasing with the increasing number of bulk-holding stocks. More analyst coverage bulk-holding stocks will result in decrease of stock price synchronicity; it means analysts supply more firm-specific information instead of market-wide information. On the other hand, because of the sensitivity of bulk-holding stocks to fund performance, links among funds and analysts along with securities companies they belong to lead to analysts’ conflicts of interest, which manifests specifically that analysts will improve their recommendation when bulk-holding funds stocks are brought in, while in contrast, they will decrease their recommendation when these stocks are sold out. Analysts are more optimistic about bulk-holding stocks than non-bulk-holding stocks and they are inclined to keep silent if the price of bulk-holding stocks declines. The return of recommendation on bulk-holding stocks is lower than that of non-bulk holding stocks indicates that analyst recommendation for bulk-holding stocks, to some extent, damages investors’ interests.The main contributions of this paper are:Firstly, it combines the background of Chinese system and uses bulk-holding stocks to study funds behavior, focusing on the influences and economic consequences of funds’ heavily holding stocks on analysts’ behavior, which provides a new breakthrough point in analyst behavior study. Secondly, different from single perspective study in previous literatures, this paper researches the effects of funds’ heavily holding stocks on analysts’behavior based on theories of both demand and supply of information and interest conflicts, observing the behaviors in a more comprehensive way. Thirdly, it provides direct evidence of information accessed by analysts——manually collected data of analyst site-visiting, showing that bulk-holding funds can promote firm-specific information mining, and the conclusion that analysts supplying more firm-specific information deceases the stock price synchronicity perfects literatures about economic consequences of analysts’ behavior. Lastly, the author hopes that these research conclusions can provide practical enlightenments and a reference for the investors who pay attention to funds and analysts’ behaviors, and have reference value for capital market regulators and other relevant subjects.