Stock dividend and analyst optimistic bias in earnings forecast

Abstract

Abundant research has found optimistic bias in analysts’ earnings forecasts. Using a sample of Chinese listed companies from 2008 to 2017, this paper investigates how stock dividend affects analyst’s optimistic bias in earnings forecast. We find that analysts bias their earnings forecasts optimistically after stock dividends. Further study demonstrates that the influence of stock dividend on analyst’s optimistic bias is more significant when the company has less institutional stock holdings or when the analyst is in a small brokerage firm. The bias is moderated when the forecast is issued by a star analyst in a bull market. Mechanism analysis reveals that analysts issue optimistic forecasts for the interests of their own rather than unconsciously. The findings of this study indicate that self-interest motivates analysts to issue biased earnings forecasts, which ultimately reduces the efficiency of the capital market.