Analyst Behavior Research Articles

10‐K complexity, analysts' forecasts, and price discovery in capital markets

AbstractThis paper examines the behaviour of stock prices and analysts' earnings forecasts following firms' increasingly complex 10‐K filings. Our evidence suggests that greater information uncertainty outweighs greater analyst ability, and the net effect drives greater underreaction in analysts' earnings forecasts following the release of more complex 10‐Ks. Further analysis suggests that analyst underreaction mitigates market overreaction to the information in low‐complexity 10‐K filings, and overwhelms market overreaction to the information in high‐complexity 10‐K filings thus compromising price discovery of the earnings implications of more complex 10‐Ks.

Government affiliation, analyst behavior and the economic consequences

AbstractA significant number of regional brokerage firms in China are owned by their respective local governments. We use this context to examine how local government affiliation affects brokerage firms’ research activities. Using a sample of analyst reports from 2013 to 2021, we find that analysts working at local government‐affiliated brokerage firms are more likely to cover firms within the local government's jurisdiction than non‐affiliated analysts. Local government‐affiliated analysts enjoy an information advantage, as evidenced by the issuance of more accurate earnings forecasts for local firms, compared to those of non‐affiliated analysts. The effect is stronger for local firms with lower information quality. Additionally, local government‐affiliated analysts show more optimism in stock recommendations, but not in earnings forecasts, for local firms, compared to non‐affiliated analysts. The effect is more pronounced for local firms that receive more local government subsidies, operate in regions with greater local government intervention or during the COVID‐19 pandemic and the National Congress conferences, and require more capital market support. The results of this study advance our understanding of the key determinants of analyst performance and provide new evidence in the debate on the role of government intervention in financial institutions.

Information or Noise? Examining the Effect of Discretionary Disclosure of Accounting Estimates on Financial Analyst Forecasts

Whether discretionary disclosure of accounting estimates increases or decreases the decision usefulness of financial information is a fundamental issue in accounting and finance. Our paper speaks to this issue by examining the effect of discretionary disclosure of accounting estimates on the forecasting behaviour of financial analysts, who are sophisticated users of financial information and play a crucial role as an information intermediary in the capital markets. We find that discretionary disclosure of accounting estimates (made in the 10‐K management discussion and analysis and financial statement footnotes) reduces analyst forecast errors and analysts’ tendency to round their annual earnings forecasts. These effects are more pronounced when analysts issue forecasts for companies with high accounting reporting complexity. Overall, the results suggest that discretionary disclosure of accounting estimates reduces information costs by providing relevant information for analysts’ forecasting decisions.

ESG performance and analyst recommendations: evidence from sustainability analysts in the Chinese market

PurposeIn this study, we examine the influence of a firm’s environmental, social, and governance (ESG) performance on analysts’ stock recommendations and earnings forecast accuracy in the Chinese context.Design/methodology/approachWe take a textual analysis approach to analyst research reports issued between 2010 and 2019, and differentiate between two distinct analyst categories: “sustainability analysts,” which refer to those more inclined to incorporate ESG information into their analyses, and “other analysts.”FindingsOur evidence indicates that sustainability analysts tend to be significantly more likely than others to provide positive stock recommendations and demonstrate enhanced accuracy in forecasting earnings for companies with superior ESG performance. Our additional analyses reveal that this finding is particularly prominent for analysts who graduated from institutions emphasizing the protection of the environment, those recognized as star analysts, those affiliated with ESG-oriented brokerages, and forecasts made by analysts in the later part of the sample period. Our findings further indicate that sustainability analysts exhibit a more pronounced negative response when confronted with a negative ESG event.Originality/valueIn general, the evidence from this study reveals the interplay between ESG factors and analyst behavior, offering valuable implications for both financial analysts and sustainable investment strategies.

Ecological product value accounting and analyst behavior

Ecological product value accounting, a key method for companies to promote green transformation, is essential to an economy’s healthy development. This study collates data on the annual ecological product value accounting of listed companies from 2001 to 2021, conducts regression analysis, and investigates the impact of these companies’ ecological product value accounting on analyst behavior. The results reveal that, first, listed companies with ecological product value accounting attract a higher number of analysts. Second, companies accounting for ecological product value have a high quality of information disclosure, with less deviation of analysts’ prediction and high accuracy. Third, the development of ecological product value accounting of listed companies reduces the divergence degree of analysts. This study reveals a significant correlation between ecological product value accounting and analyst behavior. To some degree, ecological product value accounting is an important indicator of whether a company has long-term development potential. On the basis of regression analysis, the study also focuses on the impact of ecological product value accounting on investor confidence and company value. The study findings can provide reasonable suggestions for the decision-making of stakeholders of listed company.

Consequences of firm-specific stock price crashes on analyst forecasts: Evidence from China

The phenomenon of stock price crash events (SPCs) has always attracted market attention, but existing research mainly focuses on its causes or determinants and rarely examines the consequences of SPCs. This study aims to fill this gap by examining the consequences of firm-specific stock price crash events (SPCs) on analyst forecast accuracy. Using the sample of analysts and listed companies from 2001 to 2020 and employing a difference-in-differences design, we find that after the company’s stock price crashed, the analyst forecast error decreased and the accuracy increased. For analysts who have not conducted site visits before SPC, and have no geographical advantages, this effect is more obvious, thus validating our hypothesis following analyst attention theory. Additional analysis shows that SPCs stimulate forecast accuracy more significantly for lowly-reputed analysts than for highly-reputed analysts. Channel analysis documents that, for the aforementioned group of analysts, the enhancement effect of SPCs on analyst forecasts is mediated by analyst effort increasing. This study adds to the evidence that SPCs bring positive externalities from the analyst perspective, that is, SPCs attract the attention of some analysts and improve their forecast accuracy. This study also enhances our understanding of analyst behavior under uncertainty, finally enriching the literature on the determinants of analyst forecast accuracy.

Institutional pressure and analyst behavior: Evidence from the financial sector

AbstractThis study examines the impact of employment background on the objectivity of profitability forecasts in the financial sector. We find that investment bank analysts provide relatively biased recommendations and less accurate forecasts than their counterparts at independent research firms (IRFs). The performance discrepancy is greater for bulge bracket banks and for firms involved in syndication with the analysts' employers. A closer look at analysts transitioning between IRFs and investment banks reveals that these biases stem from their affiliation with investment banks rather than personal bias. Our findings emphasize the critical influence of the work environment on analyst behavior.

Do changes in star selection criteria affect analyst behaviour?

ABSTRACT This study examines whether the star analyst selection criteria affect analysts’ coverage decisions and the informativeness of their reports. We focus on a change to the star evaluation criteria that increased the importance of quantitative standards. After the reform, analysts tend to cover firms with smaller sizes, lower profitability, lower growth, and higher systematic risk. We find that post-reform analyst coverage is positively associated with both the level of and change in stock price synchronicity, indicating that analyst reports provide market-wide information.

Government Affiliation, Analyst Behavior and the Economic Consequences

Government Affiliation, Analyst Behavior and the Economic Consequences

The effect of accounting comparability and earnings commonality on analyst behaviour

The effect of accounting comparability and earnings commonality on analyst behaviour

Exploring Book-Tax Differences, Analyst Coverage, and Forecast Optimism: An Empirical Study

This research explores the relationship between book-tax differences (BTD) and the coverage of financial analysts, as well as how these two factors relate to optimistic forecasts. By evaluating how BTD affects analyst coverage, this research expands on earlier studies and finds a negative link. Additionally, it demonstrates that greater BTD indicates a higher probability of earnings manipulation, leading analysts to have a more pessimistic view of their predictions for such organizations. This research contributes to a better understanding of financial markets by shedding light on analyst behavior, financial reporting, and the complex dynamics underlying BTD in determining analyst estimates.

Analysis of factors affecting information-seeking behaviour of the Ministry of Administrative and Bureaucratic Reform’s policy analysts

Introduction. This study examines the effect of job descriptions and capability specifications on the information seeking behaviour patterns of policy analysts at the Ministry of Administrative and Bureaucratic Reform.
 Data Collection Methods. Data was gathered via questionnaires. The respondents were 118 policy analysts across beginner, intermediate, and advanced levels.
 Data Analysis. Research data were analysed using PLS-SEM.
 Results and Discussion. The study reveals that the job descriptions had a positive impact on the policy analysts’ information-seeking habits at the Ministry of Administrative and Bureaucratic Reform. However, the capability specifications did not show any substantial positive effect.
 Conclusion. The research concludes that job descriptions play a crucial role in shaping the information-seeking behaviour of policy analysts, whereas the impact of capability specifications remains insignificant. The study further suggests several stakeholders responsible for managing information, like libraries, should take an active role in handling the data produced by policy analysts from various units. This would help the sustainable use of such data in the creation of public policies.

Do ties still bind? Analyst behaviour after financial restatements

AbstractWe find that, compared to non‐connected analysts, analysts with professional connections to a coverage firm (i.e., connected analysts) are more likely to continue covering the firm after it issues a restatement. Furthermore, connected analysts are more likely to issue pessimistic earnings forecasts and to downgrade stock recommendations for the firm after its financial restatement. Our results also reveal the costs and benefits associated with connected analysts' pessimism – a reduced market reaction to the analysts' pessimistic research on the restating firm, and a positive effect on the market's perception of the quality of the analysts' research on non‐restating firms.

Sports Mood Index and sell-side analysts

This paper explores how sports-induced bad mood affects the sentiment and behavior of sell-side financial analysts. I construct the Sports Mood Index (SMI) of metropolitan areas in the U.S. based on the performance of Big 4 professional sports teams. In sports-induced bad mood settings, sell-side analysts tend to issue more pessimistic forecasts in both earnings forecast and price target samples. Sports-induced bad mood also leads to inattention, associated with larger forecast errors, and analysts are slower or less likely to respond to earnings announcements. The results are robust to various measurements of pessimism, forecast errors and activity levels.

Business Group Analysts

We exploit the rich data of business groups in China and identify sell-side analysts following multiple listed firms within a business group (BG analysts). For a group firm, we find that BG analysts issue more accurate forecasts than non-BG analysts. Such an effect is more pronounced when the focal firm shares stronger economic links with, and when its covering analysts have greater information demand for, its group peers. Further analyses suggest evidence of intragroup information flows. Around group peers’ annual earnings announcements, BG analysts are more likely than non-BG analysts to revise their forecasts for the focal firm along the same direction as group peers’ earnings surprises. Confined to analysts’ coverage initiations for a group firm, those who have covered the focal firm’s group peers prior to the coverage initiation show superior forecasting performance during the initiation year. By adopting the unique perspective of business groups, i.e., a prevalent organizational structure, our study shows that information commonalities within a business group shape analyst behaviour.

Do Corporate Disclosures Constrain Strategic Analyst Behavior?

Abstract We show that analyst behavior changes in response to a randomly assigned shock that exogenously varies the timeliness and cost of accessing mandatory disclosures in the cross-section of investors: analysts reduce coverage and issue less optimistic, more accurate, less bold, and less informative forecasts. Our evidence indicates that analysts reduce a strategic component of their behavior: the changes are stronger among analysts with more strategic incentives like affiliated or retail-focused analysts. We conclude that mandatory disclosure can substitute for analyst information production, which is constrained by investors’ ability to verify forecasts using corporate filings. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Labor Market Activities and Analyst Behavior

Labor Market Activities and Analyst Behavior

Diverse Informational Roles of Diversity and Analyst Behavior

Diverse Informational Roles of Diversity and Analyst Behavior

Herd Behavior and Cascading in Capital Markets: A Review and Synthesis

We review theory and evidence relating to herd behaviour, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behavior of investors, firms, and analysts. We consider both incentives for parties to engage in herding or cascading, and the incentives for parties to protect against or take advantage of herding or cascading by others.

The spillover effect of economic policy uncertainty: Evidence from analyst behaviors in Hong Kong

This paper examines the spillover effect of economic policy uncertainty on the financial market by comparing how local and external policy uncertainties affect the behaviors of analysts in an international financial center. Unlike findings in the United States and the United Kingdom, high local policy uncertainty does not significantly decrease analysts’ earnings forecast accuracy or exacerbate forecast dispersion in Hong Kong. In contrast, high external policy uncertainty from Mainland China, the U.S., Europe, and across the globe significantly decrease analysts’ forecast accuracy in Hong Kong, although these external policy uncertainties have also no significant effect on forecast dispersion. In addition, both local and external policy uncertainties have significant impact on analyst coverage and recommendations. These results provide strong evidence on the cross-country spillover effect of economic policy uncertainty on a developed and international financial market.