Analysts' Reputation,Conflicts Of Interest And The Accuracy Of Earnings Forecasts

As the major providers and participants of market information,security analysts play a very important role in the stock market.The activities that many analysts collect and analyze information not only improve the pricing efficiency of the market,but also enhance the welfare of investors.However,security analysts are faced with complex interest conflicts,in particular,the status of institutional investors is gradually increased in recent years.And the number of institutional investors which participated in the stock market increased gradually,the stake is also gradually increasing,so the pressure of analysts faced from institutional investors is greater,it is likely to induce analysts to publish less accurate earnings estimates.Therefore,it is a problem worth of study that how to reduce the stress analysts are facing and improve the accuracy of analysts' earnings forecasts.The analyst's reputation is very important to analysts,reputation can even become a dominant incentive to replace the reward,because reputation is an important factor affecting people's behavior decisions.When analysts become the best analysts of the "New fortune" after fierce competition,their salary,position and fame will increase rapidly.So in theory,analysts of high reputation will reduce the behavior of conflicts of interest,its earnings forecasts accuracy will be higher than the general analysts'.However,due to the serious asymmetry of information in China's security market,it is questionable whether the reputation of analysts can play such a role.Based on the above issues,this paper choose the Shanghai and Shenzhen A-share listed companies of year of 2011—2013 as sample,empirical study on the relationship between analysts' conflicts of interest and earnings forecasts accuracy,and on this basis,this paper introduce the reputation theory,it choose the variable of analysts'reputation,set the cross multiply items of analysts' conflicts of interest and the reputation,use the multiple regression approach to discuss the correlation of the conflicts of interest and earnings forecasts level under the effect of reputation.The research background and research meaning are carried out in the introduction part.Given the important role of security analysts in the capital market,it is particularly important to ensure that analysts are not subjected to various pressures and publish the correct report.Then it introduces the research ideas and methods,and basic research framework behind the background.The second part is the literature review,this part reviews the literatures on the accuracy of analysts' earnings forecasts systematically,which mainly contains the influence factors,the existence of optimism on analysts'earnings forecasts.The third section of this article describes some important concepts,as well as some related and important theories such as the efficient market theory,reputation theory,asymmetric information theory,and a brief analysis of mechanism of analysts' conflicts of interests,reputation and earnings forecasts accuracy.Based on the mechanism of the above,the fourth part has carried on a more detailed theoretical analysis on the relationship between the three,and proposed two hypotheses of this article.The fifth part is the empirical part of this paper.Firstly,the paper introduces the data sources and the selection of sample and research variables,then study the proposition by using the method of descriptive statistics,correlation analysis and multiple regression analysis,in order to ensure the reliability of the research results,we also set up a robust test in this section.In the last part of the article,we describe the research conclusions of this paper,and put forward some proposals for the steady development of security market.In addition,it also points out the limitations of this paper and subsequent improvement directions.As the empirical results show:(1)The higher proportion of institutional investors holding,that is to say,the more pressure that analysts are subject from the institutional investors,the lower of the accuracy of analysts' earnings forecasts.(2)The earnings forecast of the best analysts selected by "New fortune" is more accurate than it by the average analyst,that is,high reputation can effectively alleviate the interest conflicts of analysts,and it can promote analysts to publish accurate studies.(3)The higher of the predictability of corporate earnings,the stronger of the company's profitability,analysts would prefer these companies and then the bias of earnings forecasts will reduce.