Local government official competition and financial analyst forecasts

Abstract

AbstractWe examine how financial analyst forecasts could be influenced by local political forces. Using Chinese data, we find that financial analysts from brokerage houses controlled by provincial governments issue more optimistic forecasts for state‐owned enterprises (SOEs) headquartered in the home province (i.e., home SOEs) than for nonhome SOEs, and this effect is more pronounced for nonhome SOEs located in competing provinces. Our results remain unchanged in a battery of robustness checks. Further, local officials are more likely to enjoy political career advancement when they pressure analysts to issue optimistic forecasts for home SOEs relative to nonhome SOEs from competing provinces.