An Emperical Study On M&A Inquiry Letter And Analysts' Earnings Forecast Optimistic Bias

The report of the Nineteenth National Congress of the Communist Party of China emphasizes “transforming the government model and innovating supervision methods”,which exemplifies the supervision market's commitment to deepening the securities market's supervision reform.Under the background of regulatory transformation,the China Securities Regulatory Commission proposes to “deregulate and strengthen supervision” to give full play to the exchange's front-line supervision.As an important part of the front-line supervision of the exchange,the inquiry letter's research value has become increasingly prominent.Analysts,as information collectors and miners,provide recommendations for investors' decisions by publishing earnings forecasts.However,in the context of China's economic transition,the information asymmetry of the listed companie's M&A behavior is high,besides,the analyst's behavior will be influenced by interest conflict and cognitive bias,which leads to analysts' s tending to issue more optimistic earning forecasts.The inquiry letter system,as an ex-post regulatory method,whether can reduce analysts' optimistic bias is uncertain.However,few literatures explore the relationship between the two.This article takes the M&A inquiry letter as the research object,and analyzes the influence of the China's exchange's self-regulatory supervision on the analysts' earnings forecast optimistic bias.The listed companies which have occurred M&A from 2014 to 2018 are selected as the research sample,and the method of empirical analysis is used to test the effectiveness of the inquiry letter mechanism.The study finds that:(1)the inquiry letter significantly reduces analysts' earnings forecasts optimistic bias.(2)Analysts' attention,media' attention,information opacity,institutional investors' shareholding ratio and market sentiment make an intermediary effect in the relationship between inquiry letter and analysts' earnings forecast optimistic bias.(3)the institutional environment positively regulates the intermediary role of analysts' attention,media attention,information opacity,institutional investors' shareholding ratio and market sentiment.(4)the breakdown and question type of the inquiry letter significantly affect the analysts' optimistic bias.Besides,the inquiry letter has better supervision effect in non-significant M&A projects and also has a certain impact on the M&A success probability and the short-and long-term acquisition performance.The theoretical significance of this article is to enrich the economic consequences of inquiry letters to M&A field and analysts' earnings forecast behavior field.In terms of practical significance,the conclusions provide a certain reference for the regulators,and provide suggestions for protecting the investors' rights,promoting the self-regulatory supervision efficiency and the healthy development of the securities market.