What is the influence of anti-corruption on the operation of the capital market? We studied this question from the perspective of analysts. We mainly focus on how the changes of government-business relations caused by anti-corruption affect analysts’ behaviors and enterprise information environment. Trapped in endogenous problems, based on cross-sectional data, it is difficult to directly verify the causal relationship among government-business relations, analysts’ behaviors and enterprise information environment. We study the above question by taking advantage of the anti-corruption event, which is a quasi-natural experiment. We choose the companies with relationships with high-level Chinese bureaucrats involved in corruption scandals between 2005 and 2011 as samples, because this kind of events are abrupt, usually unpredictable, and have no direct effect on the business activities of affiliated companies（Fan, et al., 2008）. In addition, the establishment of government-business relations needs long-term mutual specific investment（Williamson, 1983）, so it is difficult for affiliated companies to establish an alternative government-business relation immediately after the corruption officials arrested. Based on the DID model, we find that after the corruption event analyst forecast accuracy increases, divergence decreases, analysts following increases, and meanwhile, the company’s synchronization declines significantly. Furthermore, the change of company’s synchronization is mainly driven by the change of analysts following. In addition, the above results are mainly driven by the sample in more marketed regions and the state-owned companies. This paper has some contributions in both theory and practice. First, our findings prove that the analyst is an important information intermediary in the capital market. We further point out that government-business relations not only affect the efficiency of public information, such as financial reports, but also affect analysts’ behaviors, and the corresponding economic consequences, that is, the decline of enterprise information environment. Second, our research contributes to the analysts’ literature. Our findings support the negative causal relationship between government-business relations and analyst forecast accuracy, forecast divergence and analysts following. Third, we verify the causal relationship between government-business relations and enterprise information environment. As the above relationships, there have been two competitive explanations: government-business relations lead to the poor information environment, or the poor information environment increases the possibility of government-business relations established. Taking advantage of the anti-corruption event, we find empirical evidence for the first interpretation, that is, government-business relations lead to the poor information environment, and we further explore the affecting channel. Finally, the findings of our research provide empirical evidence of the economic consequences of anti-corruption. The anti-corruption helps to improve the information environment of the affiliated enterprises and reduce the information asymmetry in the capital market. In addition, our findings show that the analyst plays an important role in information transferring, and actively promoting the development of the analyst career is crucial to the improvement of the capital market.
Government-Business Relations, Analyst Forecasts and Stock Price Synchronization: Quasi-natural Experiments Based on the Fall of Corruption Officials
Journal of Finance and Economics Vol. 44, Issue 07, pp. 114 - 125 (2018) DOI:10.16538/j.cnki.jfe.2018.07.009
 Bai X. Research on multiple impacts of information disclosure policy of listed companies on the analysts forecasts[J]. Journal of Financial Research, 2009, (4): 92-112. (In Chinese)
 Chu Y, Cang Y. Are analysts forecasts credible? Evidence from China’s stock market[J]. Management World, 2008, (3): 58-69. (In Chinese)
 Fan G, Wang X, Zhu H. Marketization index of China’s provinces[M]. Economic Science Press, 2011. (In Chinese)
 Guan F, Jin Q, Zhang P. Institutional investors and analyst behavior: Evidence from private placement expiration[J]. Journal of Finance and Economics, 2015, (6): 132-144. (In Chinese)
 Jiang F, Shi B, Ma Y. Board secretary financial experience and earnings information content[J]. Management World, 2016, (9): 161-173. (In Chinese)
 Li Z. The governance role of accounting in relationship-based transactions: Paradigm exploration of internationalized China’s accounting research[J]. Journal of Finance and Economics, 2017, (2): 4-33. (In Chinese)
 Li Z. Ownership structure and stock price co-movement: Evidence from the Chinese stock market[J]. China Accounting and Finance Research, 2005, (3): 57-100. (In Chinese)
 Liu W, Xie B. A new discovery for analyst forecasting information sources: Audit firms[J]. Journal of Finance and Economics, 2017, (5): 76-88. (In Chinese)
 Song L, Zhang R. Does the listed company’s senior executives’ securities background affect analysts forecasts?[J]. Journal of Financial Research, 2010, (6): 112-123. (In Chinese)
 Tang S, Hu W, Sun Z. Political connection, institutional environment and content of stock price: Empirical evidence from stock price synchronization of private listed companies in China[J]. Journal of Financial Research, 2011, (7): 182-195. (In Chinese)
 Wang Y, Yu L, An R. Whether non-financial information disclosure improves capital market information environment: A study based on disclosure of social responsibility report[J]. Journal of Financial Research, 2014, (8): 178-191. (In Chinese)
 Xiao Z, Hu G. The effect paths of forecasts of macro-economic growth by accounting information: Earnings conduction and risk perception[J]. Journal of Finance and Economics, 2018, (1): 61-74. (In Chinese)
 You J, Zhou Y, Xiao M. Keynesian beauty contest and analysts’ earnings forecasts biases: Based on the research perspective of higher-order expectations[J]. Journal of Financial Research, 2017, (7): 192-206. (In Chinese)
 Zhang W, Fang J. Regional corruption, corporate ownership and top managers’ corruption[J]. Journal of Accounting and Economics, 2016, (3): 3-24. (In Chinese)
 Zhang Q, Dai J, Fan F. Political connections, implicit incentives, and firm value: Evidence from perks in private listed firms[J]. Journal of Accounting and Economics, 2017, (3): 56-71. (In Chinese)
 Zhao L, Li Z, Liu J. The managers’ preferences, the optimization in the evaluation of the investment level and the obtainment of the private information[J]. Management World, 2013, (4): 33-45. (In Chinese)
 Zhu H, He X, Tao L. Can China’s analysts improve the efficiency of the capital market: Empirical evidence based on stock price synchronization and stock price information content[J]. Journal of Financial Research, 2007, (2): 110-121. (In Chinese)
 Amihud Y. Illiquidity and stock returns: Cross-section and time-series effects[J]. Journal of Financial Markets, 2002, 5(1): 31-56. DOI:10.1016/S1386-4181(01)00024-6
 Bhattacharya U, Daouk H, Welker M. The world price of earnings opacity[J]. The Accounting Review, 2003, 78(3): 641-678. DOI:10.2308/accr.2003.78.3.641
 Cao Y, Guan F, Li Z, et al. More than skin-deep? Beauty and the performance of sell-side financial analysts[R]. Working Paper, 2018.
 Chaney P K, Faccio M, Parsley D. The quality of accounting information in politically connected firms[J]. Journal of Accounting and Economics, 2011, 51(1-2): 58-76.
 Chen C J P, Ding Y, Kim C. High-level politically connected firms, corruption, and analyst forecast accuracy around the world[J]. Journal of International Business Studies, 2010, 41(9): 1505-1524. DOI:10.1057/jibs.2010.27
 Chen S P, Matsumoto D A. Favorable versus unfavorable recommendations: The impact on analyst access to management-provided information[J]. Journal of Accounting Research, 2006, 44(4): 657-689. DOI:10.1111/joar.2006.44.issue-4
 Claessens S, Feijen E, Laeven L. Political connections and preferential access to finance: The role of campaign contributions[J]. Journal of Financial Economics, 2008, 88(3): 554-580. DOI:10.1016/j.jfineco.2006.11.003
 Clement M B. Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?[J]. Journal of Accounting and Economics, 1999, 27(3): 285-303. DOI:10.1016/S0165-4101(99)00013-0
 Cohen L, Frazzini A, Malloy C. Sell-side school ties[J]. The Journal of Finance, 2010, 65(4): 1409-1437. DOI:10.1111/j.1540-6261.2010.01574.x
 Faccio M. Politically connected firms[J]. The American Economic Review, 2006, 96(1): 369-386. DOI:10.1257/000282806776157704
 Fan J P H, Wong T J, Zhang T. Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms[J]. Journal of Financial Economics, 2007, 84(2): 330-357. DOI:10.1016/j.jfineco.2006.03.008
 Fan J P H, Rui O M, Zhao M. Public governance and corporate finance: Evidence from corruption cases[J]. Journal of Comparative Economics, 2008, 36(3): 343-364. DOI:10.1016/j.jce.2008.05.001
 Fan J P H, Guan F, Li Z, et al. Relationship networks and earnings informativeness: Evidence from corruption cases[J]. Journal of Business Finance & Accounting, 2014, 41(7−8): 831-866.
 Gul F A, Kim J B, Qiu A A. Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China[J]. Journal of Financial Economics, 2010, 95(3): 425-442. DOI:10.1016/j.jfineco.2009.11.005
 Harris M, Raviv A. Differences of opinion make a horse race[J]. The Review of Financial Studies, 1993, 6(3): 473-506. DOI:10.1093/rfs/5.3.473
 Healy P M, Hutton A P, Palepu K G. Stock performance and intermediation changes surrounding sustained increases in disclosure[J]. Contemporary Accounting Research, 1999, 16(3): 485-520. DOI:10.1111/care.1999.16.issue-3
 Hope O K. Disclosure practices, enforcement of accounting standards, and analysts’ forecast accuracy: An international study[J]. Journal of Accounting Research, 2003, 41(2): 235-272. DOI:10.1111/1475-679X.00102
 Jin L, Myers S C. R2 around the world: New theory and new tests [J]. Journal of Financial Economics, 2006, 79(2): 257-292. DOI:10.1016/j.jfineco.2004.11.003
 Kandel E, Pearson N D. Differential interpretation of public signals and trade in speculative markets[J]. Journal of Political Economy, 1995, 103(4): 831-872. DOI:10.1086/262005
 Lang M H, Lundholm R J. Corporate disclosure policy and analyst behavior[J]. The Accounting Review, 1996, 71(4): 467-492.
 Leuz C, Verrecchia R E. The economic consequences of increased disclosure[J]. Journal of Accounting Research, 2000, 38(S1): 91-124.
 Mayew W J. Evidence of management discrimination among analysts during earnings conference calls[J]. Journal of Accounting Research, 2008, 46(3): 627-659. DOI:10.1111/j.1475-679X.2008.00285.x
 Morck R, Yeung B, Yu W. The information content of stock markets: Why do emerging markets have synchronous stock price movements?[J]. Journal of Financial Economics, 2000, 58(1-2): 215-260.
 Petersen M A. Estimating standard errors in finance panel data sets: Comparing approaches[J]. Review of Financial Studies, 2009, 22(1): 435-480. DOI:10.1093/rfs/hhn053
 Piotroski J D, Roulstone D T. The influence of analysts, institutional investors, and insiders on the incorporation of market, industry, and firm-specific information into stock prices[J]. The Accounting Review, 2004, 79(4): 1119-1151. DOI:10.2308/accr.2004.79.4.1119
 Williamson O E. Credible commitments: Using hostages to support exchange[J]. The American Economic Review, 1983, 73(4): 519-540.
Cite this article
Guan Feng, Wang Junjie, Zhang Guiqiao. Government-Business Relations, Analyst Forecasts and Stock Price Synchronization: Quasi-natural Experiments Based on the Fall of Corruption Officials[J]. Journal of Finance and Economics, 2018, 44(7): 114-125.
Previous: Policy Burden and Private Enterprise Behavior: A Case Study of Sany Heavy Industry Corporation Changed Registered Address