This paper studies the effect of universal banking on analysts’ forecasts using the Korean data over the period of 2000-2008. We find that EPS forecasting errors made by bank-affiliated analysts are lower than those made by independent analysts. We also find that analysts affiliated with the main banks of industrial companies covered tend to issue buy or strong buy recommendations less frequently than other bank analysts, which remain statistically significant even after controlling for company and analyst characteristics in multivariate analyses. The results are consistent with superior information hypothesis in that the bank analysts make more accurate and conservative recommendations using the information generated by the main banks about the companies covered. This evidence sheds light on the bright side of the universal banking system.
JEL classification: G30; G17; G29
Keywords: Universal banking; analysts’ forecasts; stock recommendation; bank-affiliated analysts
