Do Analyst Stock Recommendations Piggyback on Recent Corporate News? An Analysis of Regular‐Hour and After‐Hours Revisions

Li, Edward Xuejun; Ramesh, K.; Shen, Min; Wu, Joanna Shuang

doi:10.1111/1475-679x.12083

Cited by 94 publications

(43 citation statements)

References 35 publications

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“…We categorize weekday (except Friday) after-hour recommendation revisions as nonstrategic under the premise that, as weekday revisions, they receive significant attention by the market even though they occur after trading hours. In support of this premise,Li et al (2015) find that after-hours recommendation revisions are associated with significantly greater price reactions than revisions during trading hours, and attribute this result to greater institutional investor attention after trading hours on weekdays. This result suggests analysts cannot exploit investor inattention by issuing recommendation revisions after hours during the week.…”

mentioning

confidence: 76%

“…An analyst recommendation downgrade can cause a decline in stock price (Asquith et al, 2005;Li et al, 2015), and prior research documents that management compensation and turnover are significantly associated with stock price performance (Coughlan and Schmidt, 1985;Gilson, 1989). Thus, managers care about outputs produced by analysts.…”

Section: Proportion Of Recommendation Downgrades On the Weekendmentioning

confidence: 99%

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Working on the weekend: Do analysts strategically time the release of their recommendation revisions?

Rees

Sharp

Wong

2017

Journal of Corporate Finance

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We examine whether financial analysts strategically time the announcement of their recommendation revisions consistent with their incentives to maintain relations with management. We provide evidence that investor and media attention to recommendation revisions is reduced on weekends, which analysts can exploit to strategically time the release of their revisions. We find that downgrades are a higher proportion of weekend revisions than weekday revisions and that analysts with characteristics that suggest they possess the strongest incentives to maintain favor with management are more likely to downgrade on the weekend. In contrast, analysts absent these characteristics are more likely to release downgrades during the week, consistent with these analysts being driven primarily by other incentives, such as the timely release of their recommendation and garnering media attention. We also present evidence suggesting that strategic disclosure of recommendation downgrades is associated with greater access to management on public earnings conference calls.

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mentioning

confidence: 76%

Section: Proportion Of Recommendation Downgrades On the Weekendmentioning

confidence: 99%

Working on the weekend: Do analysts strategically time the release of their recommendation revisions?

Rees

Sharp

Wong

2017

Journal of Corporate Finance

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“…The results from the 2‐day market reaction around site visits are easier to interpret and can help researchers to better pin down the effect of the event. Lastly, analysts do not always issue forecasts after corporate events, even if they have updated their beliefs (Li et al ; Yezegel ; Bernhardt et al ) . As a result of these potential concerns, it is important to investigate the stock price impact of corporate site visits to depict a more comprehensive picture of the unique information role of corporate site visits.…”

Section: Introductionmentioning

confidence: 99%

Do Corporate Site Visits Impact Stock Prices?

Cheng

Wang

et al. 2018

Contemporary Accting Res

183

152

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We examine the stock price impact of corporate site visits using a unique data set of site visits to listed firms in China. Our main findings are as follows. First, the market reaction around corporate site visits is statistically and economically significant and is stronger for group visits, visits conducted by mutual fund managers, visits covering accounting and finance topics, visits to firms with poor information environments, and visits to manufacturing firms. Second, the stock returns around site visits are positively associated with firms' future performance. Third, the changes in visiting funds' holdings are more predictive of firms' future performance than those of nonvisiting funds. Overall, this study contributes to the literature by providing evidence that site visits are important venues for investors to collect information about firms and make informed trades.investisseurs peuvent se renseigner sur les entreprises et prendre des décisions éclairées quant à leurs opérations.we hand-collect the information on site visits, including the date, location, and the number and type of visiting institutions. Our final sample consists of 21,189 site visits to 1,040 firms in 2,859 firm-years between 2009 and 2013. These site visits involve a wide range of visitors, including mutual funds, securities brokerage companies, banks, consulting firms, and individual investors.Not all firms have site visits. Investors conduct site visits to some firms, but not others. To better understand investors' site-visit decision, we develop a determinant model of corporate site visits. We expect that investors are more likely to conduct site visits when doing so is more beneficial. Consistent with this expectation, we find that the likelihood of site visits is higher for manufacturing firms, firms with a higher market share, larger firms, firms with higher analyst coverage, profitable firms, firms with more business segments, older firms, and firms with higher book-to-market ratios. Consistent with the notion that firms with a higher level of disclosure and transparency are more likely to grant investors the site visit opportunities, we document a higher likelihood of site visits for firms with higher disclosure ratings. Moreover, we find that investors are more likely to visit firms in cities with higher GDP growth and more listed firms. Besides shedding light on the determinants of site visits, this analysis also helps us address the potential sample selection bias for the analysis of site visits' stock price impact, which is based on the sample of firms with site visits. We adopt the Heckman approach and include the inverse Mills ratio (IMR) in all of our main analyses.The univariate analysis shows significant market reactions in the 2-day window [0, +1] around site visits. Specifically, the absolute size-adjusted abnormal return is on average 9.04 percent higher than that in the normal period. We also predict and find that the stock price impact of site visits varies with firm and site-visit characteristics. In particular, w...

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“…Our findings contribute to the literature in several ways. Considerable research has examined analysts' stock recommendations (Womack 1996;Barber, Lehavy, McNichols, and Trueman 2001;Jegadeesh and Kim 2006;Barber, Lehavy, and Trueman 2010;Li, Ramesh, Shen, and Wu 2015;Yezegel 2015), and frequently acknowledges the optimistic bias in sell-side research (Dugar and Nathan 1995;Hayes 1998;O'Brien, McNichols, and Lin 2005;Chen and Matsumoto 2006;Ramnath, Rock, and Shane 2008;Brown et al 2016). Prior research speaks to various market-based mechanisms that discipline analysts' incentives to issue biased research, such as reputation (Fang and Yasuda 2009) and institutional ownership (Ljungqvist, Marston, Starks, Wei, and Yan 2007).…”

Section: Introductionmentioning

confidence: 99%

Changes in analysts’ stock recommendations following regulatory action against their brokerage

2019

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Despite the importance of sell-side analysts in the capital markets, we know little about the effectiveness of routine monitoring of the sell-side industry. We examine the attributes of sell-side research issued by analysts before and after their brokerage is subject to regulatory sanctions. We find that after a regulatory action, analysts at sanctioned brokerages lower their stock recommendations, both in absolute terms and relative to the recommendations of other analysts following the same firms. Following a regulatory action, analysts at sanctioned brokerages are also more likely than analysts at other brokerages to downgrade a company's stock after the receipt of unfavorable information about the firm. Importantly, we document that analysts at non-sanctioned brokerages also reduce the optimism in their stock recommendations when a peer analyst's brokerage is sanctioned, consistent with regulatory spillovers as a result of routine regulatory monitoring. Our study provides empirical evidence that regulatory action against sell-side brokerages is associated with a reduction in sell-side analysts' positive bias at both sanctioned and non-sanctioned brokerages.

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Do Analyst Stock Recommendations Piggyback on Recent Corporate News? An Analysis of Regular‐Hour and After‐Hours Revisions

Cited by 94 publications

References 35 publications

Working on the weekend: Do analysts strategically time the release of their recommendation revisions?

Working on the weekend: Do analysts strategically time the release of their recommendation revisions?

Do Corporate Site Visits Impact Stock Prices?

Changes in analysts’ stock recommendations following regulatory action against their brokerage

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