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Do Ownership Ties Increase the Optimistic Bias of Analysts’ Earnings Estimates? Evidence from Corporate Financing in the Korean Market

1
School of Business Administration, College of Business and Economics, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Korea
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Merrill Lynch International LLC, 84-1 Taepyung Road Chung-Gu Seoul Finance Center, Seoul 04520, Korea
3
Korea Capital Market Institute, 143 Uisadang-daero, Yeongdeungpo-gu, Seoul 07332, Korea
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(11), 4657; https://doi.org/10.3390/su12114657
Received: 26 March 2020 / Revised: 14 May 2020 / Accepted: 3 June 2020 / Published: 7 June 2020
(This article belongs to the Section Economic and Business Aspects of Sustainability)
Previous studies argue that analysts provide optimistic estimates for corporations with which their brokerage houses have a business relationship. In this study, we investigate whether brokers with ownership ties issue optimistic estimates when their affiliates need support, as when raising debt or issuing equity. We find that Chaebol-owned brokerage houses provide optimistic earnings estimates for their affiliates relative to those provided by other brokers, especially before debt financing. However, we do not observe this relationship in the case of equity financing. These results imply that analysts with ties to corporations expect earnings management to occur around seasoned equity financing and, thus, consider the risks to their reputations. Finally, our results show that brokerage houses with ownership ties are not significantly more accurate than other brokerage houses are. View Full-Text
Keywords: conflict of interest; analyst forecast error; Chaebol-affiliated analyst conflict of interest; analyst forecast error; Chaebol-affiliated analyst
MDPI and ACS Style

Chung, C.Y.; Lee, E.; Park, C.-G. Do Ownership Ties Increase the Optimistic Bias of Analysts’ Earnings Estimates? Evidence from Corporate Financing in the Korean Market. Sustainability 2020, 12, 4657. https://doi.org/10.3390/su12114657

AMA Style

Chung CY, Lee E, Park C-G. Do Ownership Ties Increase the Optimistic Bias of Analysts’ Earnings Estimates? Evidence from Corporate Financing in the Korean Market. Sustainability. 2020; 12(11):4657. https://doi.org/10.3390/su12114657

Chicago/Turabian Style

Chung, Chune Y., Euisup Lee, and Chang-Gyun Park. 2020. "Do Ownership Ties Increase the Optimistic Bias of Analysts’ Earnings Estimates? Evidence from Corporate Financing in the Korean Market" Sustainability 12, no. 11: 4657. https://doi.org/10.3390/su12114657

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