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Moraru-Arfire, Andreea
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Moraru-Arfire, Andreea
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Ancien.ne collaborateur.trice
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- PublicationAccès libreThree essays on financial analysts' performance(2016)
; This dissertation is composed of three chapters. The first chapter explores the importance of previously identified factors in explaining the variation in analysts’ earnings forecast error. As earnings forecasts are the main input in determining price targets and consequently stock recommendations, much of the process through which analysts process their input remains in a so-called “black box”. This study attempts to shed light on these inputs. First, it reveals that forecast errors are stable over time, and analysts do not efficiently integrate past information in their forecasts. Second, analysts do not factor in expectations related to the macroeconomic conditions for the underlying forecast horizon. Analysts overreact (underreact) to positive (negative) macroeconomic expectations on both GDP and consumer sentiment index. Third, this study decomposes analysts’ forecast errors variance by observable characteristics and fixed effects. Importantly, the analysis shows that there is an unobserved, time-invariant component related to the firm-analyst dimension that explains much of the variance in the forecast errors. This component is not yet captured by the existing observable characteristics which, at date, have a trifling effect on their own in explaining the variation in analysts’ forecast error.
In the second chapter, I investigate the role of financial reporting frequency in analysts’ earnings forecasts. I addresses two questions. First, does mandatory quarterly reporting benefit financial analysts in decreasing their earnings forecast error and dispersion? Second, to what extent common accounting standards increase the convergence of analysts’ information set for firms with different reporting frequencies? I find little support to the claim that regulation forcing firms to issue more frequent financial information benefits financial analysts. Compared to a control sample of semiannual reporting firms in the European market, analysts issuing earnings forecasts for firms with mandatory quarterly frequency experience higher forecast error and dispersion. When firms are mandated to report not only on a quarterly frequency, but also under International Financial Reporting Standards (IFRS), analysts’ both forecast error and dispersion decrease. However, while IFRS does benefit analysts by increasing the quality of their information set in absolute terms, they do not wipe out the relative noise associated with mandatory quarterly statements.
The third chapter focuses on how financial analysts adapt to the passage of regulations aiming at limiting conflicts of interest in the investment banking industry. This last chapter investigates analysts’ price targets and recommendations, and unravels a new form of conflicts of interest. Specifically, it investigates whether affiliated brokers issue unfavourable ratings on their clients’ competitors in the product market (rivals). The findings document an important gap between ratings for affiliated and rival firms. Specifically, brokers issue persistently higher ratings on firms with which they are affiliated compared to their rivals. Importantly, the Sarbanes-Oxley Act and the related financial regulations aiming at curbing the conflicts of interests had no significant impact in reducing this gap. As such, affiliated brokers continue to indirectly favour their clients. This form of conflict was devoid of adequate attention in prior research. Furthermore, investors are unaware of the existence of such conflict in the short-run.