The optimism and accuracy of bank-affiliated analysts' forecasts

This paper studies the effect of commercial bank affiliation on analysts' forecasts using the Korean data over the 2000-2015 period. We find that the median EPS forecast error of 2.88% made by independent analysts is significantly larger than the median error of 2.47% made by bank-affiliated analysts. The difference in the optimism and accuracy of independent vs. bank-affiliated analysts is significant only for non-chaebol companies. We also find that capital markets respond to more positively (or more negatively) to stock recommendation changes that bank-affiliated analysts make and that the responses are larger for non-chaebol companies. The results are consistent with our conjecture that bank-affiliated analysts make more informative forecasts by sharing the information generated by commercial banks under bank conglomerates, their information advantage is salient for non-chaebol companies, and capital markets give value to the information advantage.