Do investor preferences affect analyst research? Evidence from Chinese dual-listed shares

We examine whether brokerages cater to investors’ preferences and beliefs when producing analyst reports. We leverage a unique feature of the Chinese market — firms whose shares are dual-listed on a Chinese stock exchange (A-shares) as well as on the Hong Kong stock exchange (H-shares). We rely on the segmented nature of these two markets — with A-shares primarily traded by Chinese investors and H-shares by foreign investors — and the assumption that Chinese and foreign investors have divergent preferences and beliefs. We find that A-share analyst reports discuss more government-related issues, less valuation-related information, and have more positive tone and more optimistic recommendations relative to H-share reports, within the same firm-year-month and holding constant the brokerage firm. We find consistent evidence when examining differences between analyst reports written in Chinese versus English within the same share market. Overall, this paper presents evidence supporting a catering theory for the production of analyst research.