Research On Profit Forecast At The Perspective Of Financial Analysts

With the development of China’s securities market, the problem of "asymmetric information" from "two rights separation" has increased day by day. Investors, creditors and other market participants play a weak role in information. And the most market participants, without systematic study, can’t get useful information from financial statements provided by listed companies. So, due to the scarcity of information, the mistakes in investment decision have occurred often. In this case, as an independent third-party, financial analysts emerged. As intermediaries on the securities market, they put up a bridge between investors and listed companies. Financial analysts supply market participants with information, such as profit forecast, investment grade, target price and etc, by research reports. And in this information, the most liked by investors is profit forecast information. Because, it’s not only about listed company’s profit, but also about the effective forecasts of listed company’s future earnings. For investors, the profit forecast information can help them evaluate listed companies’future development correctly and make a more reasonable investment decision. It’s extremely useful accounting information. Therefore, as "future information", the profit forecast information caused all of the market participants’attention. And financial analysts’profit forecasts, which get common concerns from the academic circles and the practical realm, have become an important object of study.Based on the efficient market hypothesis, the theory of asymmetric information, the theory of contract and the signaling theory, drawing on the research results of domestic and foreign financial analysts’profit forecasts, using the methods of qualitative description and quantitative analysis, this paper researches on two basic characteristics—reliability and divergence of China’s financial analysts’profit forecasts. Besides, this paper analyses the influencing factors about reliability and divergence. Otherwise, this paper puts forward several suggestions about China’s financial analysts industry based on the current situation of financial analysts and the conclusions of empirical research. The main contents are as follows:(1) Introduces the basic knowledge about financial analysts and profit forecast, and expounds that the financial analysts’ profit forecast plays an important role in China’s securities market based on theoretical analysis. Besides, this paper shows that it’s necessary to further study on financial analysts’profit forecast. And, points out specially that the financial analysts who refer to this paper are sell-side analysts.(2) Reviews a part of research results about domestic and foreign financial analysts’ profit forecasts, and has a brief review on these literatures. On the basis, this paper puts forward a research opportunity.(3) Analyses six influencing factors to the reliability and divergence of financial analysts’profit forecasts by setting multiple linear regression model, which using the listed companies’data of Shenzhen Stock Exchange from GTA Database in2010. The six factors are quality of information disclosure, size of company, profit and loss in previous year, proportion of intangible assets, predictability of company’s future earnings and Seasoned Equity Offering. The results show that:①the reliability of financial analysts’profit forecast is reliable, and75%of the sample companies’ratios of prediction error are less than40%; the divergence of financial analysts’profit forecast is low, and83%of the sample companies’predicted differences are less than40%.②there is a systematic optimistic bias in financial analysts’profit forecast, and analysts are inclined to make more optimistic forecasts to Loss Company than Profit Company.③the reliability of analysts’ profit forecast is positively associated with quality of information disclosure, profit and loss in previous year, predictability of company’s future earnings and negatively associated with Seasoned Equity Offering; the divergence of analysts’profit forecast is positively associated with predictability of company’s future earnings and negatively associated with quality of information disclosure, size of company, profit and loss in previous year.(4) According to the conclusion of study, this paper gives some suggestions to raise the reliability of analysts’ profit forecast and reduce the divergence in the aspects of government, analyst industry, analysts and investors. It is expected that these suggestions can make China’s financial analyst industry has a standard development.