| As important information intermediaries in capital market, securities analysts collect and analyze market, industry and firm-specific information related to followed listed firms. They inform investors with their judgment on firm prospect in form of earnings forecasts and stock recommendations. Compared with western developed markets, an emerging capital market like China has shaped the trajectory of securities analyst professionalism. The institutional arrangements and brief development history have put Chinese securities analysts into a series of predicaments. For instance, a variety of conflicts of interests compel analysts to issue upward biased research reports and thus compromise their research independence; It is difficult for star analysts to maintain superior forcasting level, and their professional reputation is questionable due to lack of regulation and supervison; Complex corporate ownership structure, such as pyramidal ownership structure, leads to opaque information disclosure, which challenges analysts’ ability to access and acquire firm-specific information.My dissertation tends to study securities analysts’ behavior from three dimensions like research independence, conflicts of interests and professional competence. Theoretically, the information efficiency of capital market relies on the dissemination of objective, timely and unbiased information by securities analysts. In reality, the independence of sell-side analysts hardly sustains. Analysts submit themselves to a variety of conflicts of interests and issue optimistic research reports (Michaely and Womack,1999). The first issue we are interested in is whether securities broker would pressure analyst employees to issue optimistic reports in order to lift stock price when withdrawing equity investment. Empirical results show that analysts fail to resist the pressure from brokers and issue optimistic earnings forecasts and stock recommendations. On the other hand, concerning long-term career development, analysts have incentives to establish and maintain reputation. Reputation has long been viewed as an effective mechanism to alleviate conflicts of interest between principle and agent (Fama,1980). Therefore, the second issue we examined is to discuss whether reputation curbs analysts’ optimism by observing forecasting behavior prior to and after getting listed as stars. Consistent with Fang and Yasuda (2009), we find that forecasting quality indicators deteriorate after being voted as stars, suggesting star analysts tend to liquidate their reputation capital. It’s difficult for analysts to maintain professional reputation over long run. The malfunctioning of reputation drives us to further explore underlying mechanisms behind the scene. We wonder if unique features of Chinese institutional setting affect analysts’ information efficiency. Specifically, we focus on stock synchronicity of listed firms with different ownership structure (pyramidial structure vs. non-pyramidial structure). Empirical results show that the stock synchronicity of firms with pyramidal ownership is higher than that of firms with non-pyramidal ownership. The underlying reason is that the complexity of ownership structure provides ultimate controllers with opportunities of manipulating inside information, raising the threshold for outside investors and analysts to access firm-specific information. Consequently, analysts have no option but to rely more on market and industry information, uplifting stock synchronicity of firms with pyramidal ownership. On the other hand, professional competence of analysts in China needs to be improved. They seem to be unable to collect and disseminate firm-specific information on firms with more complex structure ownership.This dissertation consists of seven chapters, each chapter proceeds as follows:Chapter one is introduction, describing research background, objectives, content and structure.Chapter two summarizes institutional background of securities analyst professionalism in United States and China, respectively. Based on introductions on the history and current status of sell-side securities analysts, the discrepancies on securities analyst professionalism between United States and China are discussed. Finally, the voting event of "New Fortune Best Analyst", a market-oriented performance evaluation system, is introduced briefly.Chapter three focuses on literature review. Overseas literature on financial analysts is reviewed along the dimensions of forecasting characteristics and economic consequences, analysts’ reputation and its influence, the influence of institutional investors on forecasting bias as well as analyst following and information efficiency. Ultimately, related domestic research on financial analysts is reviewed and potential research fields are identified.Chapter four extends the research on analysts’ conflicts of interests. Taking the perspective of securities brokerage firm with equity investment, chapter four examines whether if brokers pressure analysts to lift stock price of target firms by issuing optimistic research reports when it comes to withdrawing equity investment. The empirical results support the hypotheses.Chapter five explores whether reputation functions as well in Chinese stock market as in western stock market to curb analysts’interests of conflicts. Matching stars with non-stars, we use difference-in-difference (DID) to study analysts’ forecasting behavior before and after getting listed. We find that forecasting accuracy and consistency deteriorate after analysts are voted as stars, suggesting that it’s difficult for star analysts to sustain superior professional competence.Chapter six evaluates securities analysts’competence from the perspective of firm-specific information mining. Presumably, analysts contribute three categories of information to investors:market, industry and firm-specific information. The contributing proportion depends on the difficulty of information acquisition for each category. In this chapter, we attempts to examine whether different ownership structures affect analysts’initiatives to dig into firm-specific information. Specifically, we find that firms with pyramidal ownership exhibit higher stock synchronicity than counterparts with non-pyramidal ownership.Chapter seven presents research conclusions, policy implications, innovations and limitations.The research innovations and contributions are as follows:First, different from prior studies on how investment banks support equity investment business line at entry stage(Michaely and Womack,1999; Fang,2012), the first study, taking the perspective of withdrawing equity investment, examines how brokers push affiliated analysts to issue optimistic reports and gain extra investment proceeds. In this study, we expand categories of equity investment to increase the variety and size of sample, making research conclusions more convincing. Second, the current study enriches the line of literature on analysts’ reputation mechanism.In particular, the second study extends Fang and Yasuda (2009) and finds consistent evidence with "analysts’ reputation liquidation hypotheses", which deepens our understanding towards analysts’ reputation. The results suggest that the voting of New Fortune Best Analysts does have some merits. The star list at least partially reflects analysts’ research abilities as reflected by forecasting accuracy and consistency. The research level of non-stars improves over time, suggesting the motivating effect of this voting system. On the other hand, the second study also opens up a new question for future research, that is, why star analysts tend to liquidate reputation at the price of compromising research quality.Third, the current study makes contributions to the line of research on analysts’ information efficiency. Although prior studies have investigated analyst information dissemination efficiency (Fan et al.2002; Feng and Li,2013), few researchers examine this issue from the perspective of analysts’ ability of information mining. The current study attempts to fill this void by introducing ultimate ownership structure. We find that the complexity of corporate ownership impedes analysts from getting access to firm-specific information and uplifts stock synchronicity. In other words, analysts’ information mining ability is limited due to the complexity of corporate ownership structure. |
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