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The Effects of Analyst‐Country Institutions on Biased Research: Evidence from Target Prices

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  • MARK T. BRADSHAW
  • ALAN G. HUANG
  • HONGPING TAN
Abstract
Prior research demonstrates that a strong institutional infrastructure in a country moderates self‐serving behavior of market participants. Cross‐country economic activities have increased significantly, presenting a research opportunity to examine the relative influence of local versus foreign institutional infrastructure on individual market participants. We utilize variation in analyst‐country location relative to covered firm location to examine institutional determinants of optimism in analyst research. Focusing on target prices, where persistent optimism is well documented, we find that analysts domiciled in countries with stronger institutional infrastructures exhibit significantly attenuated target price optimism and more value‐relevant target prices. Our results demonstrate the importance of domestic country‐level institutional factors in moderating self‐serving behavior of market participants engaged in cross‐country activities.

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  • Mark T. Bradshaw & Alan G. Huang & Hongping Tan, 2019. "The Effects of Analyst‐Country Institutions on Biased Research: Evidence from Target Prices," Journal of Accounting Research, Wiley Blackwell, vol. 57(1), pages 85-120, March.
    • Handle: RePEc:bla:joares:v:57:y:2019:i:1:p:85-120
    DOI: 10.1111/1475-679X.12245
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    5. Joana Almeida & Raquel M. Gaspar, 2021. "Accuracy of European Stock Target Prices," JRFM, MDPI, vol. 14(9), pages 1-27, September.
    6. Vesa Pursiainen, 2022. "Cultural Biases in Equity Analysis," Journal of Finance, American Finance Association, vol. 77(1), pages 163-211, February.
    7. Stolowy, Hervé & Paugam, Luc & Gendron, Yves, 2022. "Competing for narrative authority in capital markets: Activist short sellers vs. financial analysts," Accounting, Organizations and Society, Elsevier, vol. 100(C).
    8. Shengzhong Huang & Hongping Tan & Xiongyuan Wang & Changqiu Yu, 2023. "Valuation uncertainty and analysts’ use of DCF models," Review of Accounting Studies, Springer, vol. 28(2), pages 827-861, June.
    9. Ho, Tuan & Nguyen, Yen & Parikh, Bhavik & Vo, Dinh-Tri, 2020. "Does foreign exchange risk matter to equity research analysts when forecasting stock prices? Evidence from U.S. firms," International Review of Financial Analysis, Elsevier, vol. 72(C).
    10. Andersson, Patric & Hellman, Niclas, 2020. "Analysts’ evaluations of acquisitions: Swedish survey evidence on IFRS knowledge and the use of accounting information for valuation purposes," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 41(C).
    11. Roberto Pascual, 2021. "Do analysts forecast differently in periods of uncertainty? An empirical analysis of target prices for Spanish banks," Working Papers 2144, Banco de España.
    12. Connie X. Mao & Wei-Ling Song, 2021. "Does Reciprocity Affect Analysts’ Incentives to Release Timely Information? Evidence from Syndication Relationships in Securities Underwriting," Management Science, INFORMS, vol. 67(1), pages 617-639, January.
    13. Peter Clarkson & Alexander Nekrasov & Andreas Simon & Irene Tutticci, 2020. "Target price forecasts: The roles of the 52‐week high price and recent investor sentiment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1365-1399, October.
    14. Bolognesi, Enrica & Burchi, Alberto, 2023. "The impact of the ESG disclosure on sell-side analysts’ target prices: The new era post Paris agreements," Research in International Business and Finance, Elsevier, vol. 64(C).
    15. Markus Buxbaum & Wolfgang Schultze & Samuel L. Tiras, 2023. "Do analysts’ target prices stabilize the stock market?," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 763-816, October.
    16. Zijia Du & Alan Guoming Huang & Russ Wermers & Wenfeng Wu, 2022. "Language and Domain Specificity: A Chinese Financial Sentiment Dictionary [The effects of analyst-country institutions on biased research: Evidence from target prices]," Review of Finance, European Finance Association, vol. 26(3), pages 673-719.
    17. Partha Mohanram & Brian White & Wuyang Zhao, 2020. "Stock-based compensation, financial analysts, and equity overvaluation," Review of Accounting Studies, Springer, vol. 25(3), pages 1040-1077, September.

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