The quality of securities firms' earnings forecasts and stock recommendations: Do informational advantages, reputation and experience matter in China?

Do informational advantages, reputation and experience lead to better earnings forecasts and stock recommendations? It is shown that for local Chinese securities firms both earnings forecasts and stock recommendations are, in general, biased upwards and financial markets view stock recommendations as having new information. Contrary to the literature, securities firms who acted as investment bankers and securities firms with headquarters close to the stock's headquarters do not issue better or worse earnings forecasts than the average securities firms nor do financial markets view recommendation for these as having more information than recommendations issued by the average securities firms. But financial markets view recommendations from securities firms located in the financial centres as having more information. “Star” analysts do indeed issue more accurate earnings forecast but highly ranked securities firms do not. Finally, general experience of the securities firms reduces forecast errors.