Prior studies show that chaebol-affiliated analysts issue less accurate and more optimistic forecasts for the member companies in the same business group. Extending this line of literature, this study investigates the ability of affiliated and independent analysts to understand the implications of firms’ accruals, a key component of earnings. Our results show that chaebolaffiliated analysts are more likely to overreact to accruals than do independent analysts, by overestimating the persistence of accruals. We posit that this result could be explained by affiliated analysts’ inability to understand the implications of accruals or intentional overreaction resulting from conflicts of interest. In additional analyses, we find that affiliated analysts’ accrual-related biases are more pronounced for (1) analysts with longer career or firmspecific experience, (2) optimistic rather than pessimistic forecasts, and (3) firms that fail to meet or beat other earnings benchmarks, suggesting that conflict of interests is likely to be the source of affiliated analysts’ accrual-related biases. 

Keywords: accruals, affiliated analysts, business group, chaebol, conflicts of interest, forecast accuracy
JEL classification: G31; G32​