Bias in the Post-IPO Earnings Forecasts of Affiliated Analysts. Evidence from a Chinese Natural Experiment

Investment banks and issuers of Chinese domestic IPOs became fully responsible for IPO offer prices only on June 10, 2009. Before this regulatory reform, the optimistic bias in post-IPO earnings forecasts is highly comparable across affiliated and unaffiliated analysts. Afterward, the forecasts of affiliated analysts are 33 percentage points more positively distorted on average. In the first 90 days after an IPO, this relative forecast bias even increases to 63 percentage points and enlarges further when the issuer's stock price drops in the aftermarket. Affiliated analysts distort especially their forecasts for fiscal years further away from the forecast release date