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Analysts’ Reputational Concerns, Self-Censoring, and the International Dispersion Effect

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  • Chuan-Yang Hwang

    (Nanyang Business School, Nanyang Technological University, Singapore 639798)

  • Yuan Li

    (Cambridge Judge Business School and CERF, University of Cambridge, Cambridge CB2 1AG, United Kingdom)

Abstract

Stocks with higher forecast dispersion earn lower future returns and have a greater upward bias in the mean reported earnings forecast in international markets. Both phenomena are stronger in countries with more transparent information environments, more developed stock markets, stronger investor protection, greater capital openness, and more intense usage of analysts’ earnings forecasts. Using the 1997–1998 Asian financial crisis as a natural experiment, we find that both phenomena become weaker postcrisis in Malaysia, which imposed capital controls, relative to Thailand and South Korea, which opened their financial markets to foreigners. These results suggest that analysts in countries with greater demand for their forecasts and hence greater concerns for reputations are more likely to self-censor their low forecasts, which leads to a stronger dispersion–bias relation and a stronger dispersion effect.

Suggested Citation

  • Chuan-Yang Hwang & Yuan Li, 2018. "Analysts’ Reputational Concerns, Self-Censoring, and the International Dispersion Effect," Management Science, INFORMS, vol. 64(5), pages 2289-2307, May.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:5:p:2289-2307
    DOI: mnsc.2016.2642
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    Cited by:

    1. Somdutta Basu & Suraj Shekhar, 2021. "What's In A Name? Reputation and Monitoring in the Audit Market," Working Papers 60, Ashoka University, Department of Economics.
    2. Gao, Zhan & Quan, Xiaofeng & Xu, Xingmei, 2022. "Under watchful eyes: Analyst site visits and firm earnings management," International Review of Financial Analysis, Elsevier, vol. 83(C).
    3. Hwang, Chuan-Yang & Wong, Kit Pong & Yi, Long, 2022. "What explains the dispersion effect? Evidence from institutional ownership," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).

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