Which types of analyst firms make more optimistic forecasts?

Research optimism among securities analysts has been attributed to incentives provided by underwriting activities. We examine how analysts' forecast optimism varies with the business activities used to fund research. We find that analysts at firms with underwriting and trading businesses are actually less optimistic than those at pure brokerage houses, who perform no underwriting. The relatively less optimistic forecasts for underwriting firms are not fully explained by bank reputation. Nor is the relative optimism of brokerage firms explained by the types of clients they serve (retail or institutional). We conclude that sales and trading activities used to fund research create strong incentives for analyst optimism.