Selective optimism of analysts affiliated with mutual funds

초록

This study examines whether conflicts of interest induced by group affiliation between asset management companies (AMCs) and brokerage firms compromise the independence of the affiliated analysts’ forecasts. That is, we investigate whether affiliated analysts treat stocks held by mutual funds in the same chaebol group differently from other stocks. Our main results indicate that analyst forecasts are selectively optimistic about the stocks that are of the greatest interest to affiliated AMCs. Specifically, analysts produce more accurate forecasts for stocks held by affiliated AMCs in general, while their recommendations and forecasts become more optimistic and less accurate as the amount of funding invested in such stocks increases within a fund held by affiliated fund managers. Selective optimism is also found when the asset management fees are high and when those stocks are newly added to the funds held by affiliated fund managers.

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