Abstract
This paper examines various factors affecting Chinese financial analysts’ information comprehension, analyzing ability and job quality. We hypothesized that financial analysts with better educational background, more experience, superior resources provided by large brokerage firms and more information sources have better information comprehension, stronger analyzing ability, and higher job quality. Using a survey method to collect data, we found that information sources have a significant impact on analysts’ information comprehension, analyzing ability and job quality. Specifically, analysts tend to exhibit greater information comprehension and better job quality when they conduct more company-level surveys. Additionally, when they have more access to firms’ indirect information, analysts tend to have a stronger analyzing ability and better job quality. We also found that analysts’ educational background has a positive impact on their analyzing ability while analysts’ work experience improves their job quality. This study’s results indicate that financial analysts are still a fledgling profession in current China, and the capabilities of Chinese financial analysts need to be improved through additional training and continued education. Moreover, our study is important in highlighting the urgency of fostering the development of the financial analysis profession in China.
Similar content being viewed by others
References
Abarbanell J, Lehavy R (2003) Biased forecasts or biased earnings? The role of reported earnings in explaining apparent bias and over/underreaction in analysts’ earnings forecasts. J Account Econ 36:105–146
Adrem AH (1999) Essays on disclosure practices in Sweden—causes and effects. Unpublished doctoral dissertation, Lund University
Baldwin BA (1984) Segment earnings disclosure and the ability of security analysts to forecast earnings per share. Account Rev 59(3):376–389
Barron OE, Byard D, Kile C, Riedl EJ (2002) High-technology intangibles and analysts’ forecasts. J Account Res 40(2):289–312
Barron OE, Kile CO, O’Keefe TB (1999) MD&A quality as measured by the SEC and the analysts’ earnings forecasts. Contemp Account Res 16(1):75–109
Barth ME, Kasznik R, McNichols MF (2001) Analysts coverage and intangible assets. J Account Res 39(1):1–35
Basu S, Hwang L, Jan CL (1998) International variation in accounting measurement rules and analysts’ earnings forecast errors. J Bus Finan Account 25:1207–1247
Biddle GC, Ricks WE (1988) Analyst forecast errors and stock price behavior near the earnings announcement dates of LIFO adopters. J Account Res (Autumn):169–194
Biggs SF (1984) Financial analysts’ information search in the assessment of corporate earning power. Account Org Soc 9(3–4):313–323
Bowen RM, Davis AK, Matsumoto DA (2002) Do conference calls affect analysts’ forecasts? Account Rev 77(2):285–316
Brown LD, Richardson GD, Schwager SJ (1987) An information interpretation of financial analyst superiority in forecasting earnings. J Account Res 22(Spring):49–67
Butler KC, Lang LHP (1991) The forecast accuracy of individual analysts: evidence of systematic optimism and pessimism. J Account Res 29(1):150–156 (Spring)
Clement MB (1999) Analyst forecast accuracy: do ability, resources, and portfolio complexity matter? J Account Econ 27(3):285–303
Dechow P, Hutton A, Sloan R (2000) The relation between analysts’ long-term earnings growth forecasts and stock price performance following equity offerings. Contemp Account Res 17(1):1–32
Douthett E, Jung K, Kwak W (2004) Japanese corporate groupings (Keiretsu) and the characteristics of analysts’ forecasts. Rev Quant Finan Account 23(2):79–98
Dugar A, Nathan S (1995) The effect of investment banking relationships on financial analysts’ earnings forecasts and investment recommendations. Contemp Account Res 12:131–160
Duru A, Reeb DM (2002) International diversification and analysts’ forecast accuracy and bias. Account Rev 77(2):415–433
Eames M, Glover SM, Kennedy J (2002) The association between trading recommendations and broker-analysts’ earnings forecasts. J Account Res 40(1):85–104
Eng LL, Teo HK (2000) The relation between annual report disclosures, analysts’ earnings forecasts and analyst following: evidence from Singapore. Pacific Account Rev 11:219–239
Francis J, Hanna JD, Philbrick DR (1997) Management communication with security analysts. J Account Econ 24:363–394
Hand JRM (1995) 1974 LIFO excess stock returns and analyst forecast error anomalies revisited. J Account Res 33(1):175–191
Haw I, Jung K, Ruland W (1994) The accuracy of financial analysts forecasts after mergers. J Account Audit Finan 9(Summer):465–486
Healy P, Hutton A, Palepu K (1999) Stock performance and intermediation changes surrounding sustained increases in disclosure. Contemp Account Res 16(3):485–520
Hirst ED, Hopkins PE (1998) Comprehensive income reporting and analysts’ valuation judgments. J Account Res 36:47–75
Ho L, Liu C, Schaefer T (2007) Analysts’ forecast revisions and firms’ research and development expenses. Rev Quant Finan Account 28(3):307–327
Hope O-K (2003) Disclosure practices, enforcement of accounting standards, and analysts’ forecast accuracy: an international study. J Account Res 41(2):235–272
Hopkins PE, Houston RW, Peters MF (2000) Purchase, pooling, and equity analysts’ valuation judgments. Account Rev 75(3):257–281
Hu Y, Lin TW, Wang WL (2003a) An empirical study of China financial analysts’ information sources, concerned areas, analysis tools. China J Finan Res (December): 52–63 (in Chinese)
Hu Y, Rao YC, Chen YG, Li CP (2003b) Chinese financial analysts’ ability of information comprehension: a study on annual reports. China Account Stud 11 (in Chinese)
Irani A (2004) The effect of regulation fair disclosure on the relevance of conference calls to financial analysts. Rev Quant Finan Accoun 22(1):15–28
Jacob J, Lys TZ, Neale MA (1999) Expertise in forecasting performance of security analysts. J Account Econ 28:51–82
Khanna T, Palepu KG, Chang JJ (2000) Analyst activity around the world. Working paper, Harvard University
Kross W, Ro B, Schroeder DA (1990) Earnings expectations: the analysts’ information advantage. Account Rev 65(2):461–476
Lacina M, Karim K (2004) Tests of market reaction and analysts’ forecast revisions to the disclosure of improved management earnings expectations: a case of concurrent bad news management earnings forecasts. Rev Quant Finan Account 23(2):123–148
Lang MH, Lins KV, Miller DP (2003) ADRs, analysts, and accuracy: does cross listing in the United States improve a firm’s information environment and increase market value? J Account Res 41(2):317–344
Lang MH, Lundholm RJ (1996) Corporate disclosure policy and analyst behavior. Account Rev 71(4):467–492
Lin H, McNichols M (1998) Underwriting relationships and analysts’ earnings forecasts and investment recommendations. J Account Econ 25(1):101–127
McEwen RA, Hunton JE (1999) Is analysts forecast accuracy associated with accounting information use? Account Horizons 13(1):1–16
Mest D, Plummer E (2003) Analysts’ rationality and forecast bias: evidence from sales forecasts. Rev Quant Finan Account 21(2):103–122
Mikhail MB, Walther BR, Willis RH (1997) Do security analysts improve their performance with experience? J Account Res 35:131–166
Mikhail MB, Walther BR, Willis RH (1999) Does forecast accuracy matter to security analysts? Account Rev 74(2):185–200
Mikhail MB, Walther BR, Willis RH (2003) The effect of experience on security analyst underreaction. J Account Econ 35:101–116
Morgenson G (1997) See no evil; speak no evil. Forbes (December 15):162–167
O’Brien P (1985) An empirical analysis of analysts’ forecasts of earnings per share. Ph.D. dissertation, University of Chicago
O’Brien P (1987) Individual forecasting ability. Manage Finan 13:3–9
O’Brien P (1990) Forecast accuracy of individual analysts in nine industries. J Account Res 35:131–166
Plumlee MA (2003) The effect of information complexity on analysts’ use of that information. Account Rev 78(1):275–296
Pope PF (2003) Discussion of disclosure practices, enforcement of accounting standards, and analysts’ forecast accuracy: an international study. J Account Res 41(2):273–283
Sedor LM (2002) An explanation for unintentional optimism in analysts’ earnings forecasts. Account Rev 77(4):731–753
Stickel S (1992) Reputation and performance among security analysts. J Finan 47:1811–1836
Tan H-T, Libby R, Hunton JE (2002) Analysts’ reactions to earnings preannouncement strategies. J Account Res 40(1):223–247
Welch I (2000) Herding among security analysts. J Finan Econ 58:369–396
Wiedman C (1996) The relevance of characteristics of information environment in the selection of a proxy for the market’s expectations for earnings: an extension of Brown, Richardson, and Schwager (1987). J Account Res 34(Autumn):313–324
Acknowledgements
We thank participants of the 14th Annual Conference on Pacific Basin Finance, Economics and Accounting and the 2006 American Accounting Association Annual Meeting for helpful suggestions. We also thank Pengcheng Li for his excellent research assistance.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Hu, Y., Lin, T.W. & Li, S. An examination of factors affecting Chinese financial analysts’ information comprehension, analyzing ability, and job quality. Rev Quant Finan Acc 30, 397–417 (2008). https://doi.org/10.1007/s11156-007-0058-3
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11156-007-0058-3