1 Executive and Board Shareholding, Compensation, and Analyst Forecast of Chinese Firms

Based on the coverage of analysts ’ forecasts of Chinese listed companies for years 2005 to 2011, this study empirically tests the impact of top executives and firm leadership shareholding and cash compensation on analyst optimism and forecast dispersion as indicators of analysts ’ assessment of firm intrinsic value. We show that executives and firm leadership cash compensation significantly reduces the earnings expectations and increases earnings uncertainties. Managerial shareholding exhibits insignificant effects on analyst opinions. Further analysis using the excessive component of cash compensation gives strong support for the managerial power view of compensation. Our findings appear robust after considering the type of corporate control and measures of shareholder protection. Dividend payout and shareholder activism appear to have significant influence on the effects managerial power has on analyst opinions, whereas block tradable shareholders and equity incentives exert no influence on such effects. JEL classification: G15, G3