Joint Meeting of the Mid-Atlantic and Northeast Regions

Dual Holdings and Analysts' Forecast Properties

• In Event: Financial Analysts and Forecasts

Abstract

This study examines the effect of institutional dual-ownership on analysts' earnings forecast properties. We hypothesize that dual holding positively affects analysts' forecast performance because of an improved information environment and enhanced monitoring. Indeed, we find that dual holding is negatively associated with the analysts' forecast errors and dispersions. Propensity score-matched sample and difference-in-differences tests using financial institution mergers corroborate our main findings. Cross-sectional analyses show that the positive effects of dual ownership on analysts' forecast performance are pronounced in firms with high information asymmetry, pre-existing high conflicts of interest between equity holders and debt holders, and low accounting comparability. Overall, our findings suggest that dual holders enhance firms' information environment as dual holdings improve the monitoring of firms' financial information and incentivize managers to disclose more information to analysts.

Authors

• Seung Won Lee, Penn State University - Harrisburg

• HakJoon Song, Cal State University - Dominguez Hills

• Sunghoon Joo, California State University, Dominguez Hills