Framing and moderating conflicts among securities analysts

In this study, we investigated conflicts of interest wherein proprietary departments of securities companies had engaged in opposite-direction trading, in the midst of optimistic securities analyst forecasts. The study also explored the market forces moderating these conflicts of interest. Using a sample of listed Taiwanese companies, the findings indicated that the trading actions of proprietary departments affiliated with securities companies tended to contradict those issued by securities analystsʹ optimistic earnings forecasts. In addition, the shareholding rates of Investment Trust Companies and Securities Dealers affected the biases of securities analystsʹ optimistic earnings forecasts; although only foreign investment shareholdings were linked to the opposite-direction trading. Finally, following a series of mergers in Taiwan financial market between 2001 and 2006, a number of sample securities firms joined bank holding companies (BHCs). The function of the BHCs was able to moderate optimistic earnings forecasts, caused by the biases of non-affiliated securities analysts. However, the BHCs could not alleviate the conflicts of interest among all securities analysts sampled in this study.