Information content and informativeness of analysts’ report: evidence from Malaysia

Abstract

Purpose This study aims to document the influence of information content and the informativeness of analyst reports towards cumulative abnormal return in the Malaysian market. Design/methodology/approach Samples of analyst reports for the period 4th January 2010 until 24th December 2015 were collected from the Bursa Malaysia’s repository system for daily basis information. The study uses market-adjusted method for the calculation of cumulative abnormal return and panel regression to test the research objective. In addition, diagnostic tests, which include the variance inflation factor (VIF), correlation analysis, heteroscedasticity tests, serial auto-correlation and the Hausman test, were also performed to ensure the validity and reliability of the data. Findings Result from the unbalanced panel data reveals that not all information contained in the analyst reports is able to detect stock returns movement. Only five variables are shown to have a strong association with the returns, and these are target price, earnings forecast, return on equity, cash flows to price and sales to price ratio. The R-square value has also been shown to be relatively low (0.79 per cent), indicating the low predictive power of information content and the informativeness of the analyst report in explaining stock returns. To support the findings based on the knowledge obtained, a descriptive analysis on whether the analyst reports were able to predict the recommendation accurately was performed. Result from the descriptive analysis shows that only 57 per cent of the recommendations are accurate, evidenced by the differing target price and ending price. This outcome appears to contradict the theory of signalling hypothesis. Hence, it can be concluded that analyst reports have less informational role among investors. Originality/value This paper has, thus, provided insight into how information disclosed in the analyst report influence the return of stocks, further extending the limited research on analyst report in the context of the Malaysian markets. The paper has also added to the existing literature by providing several implications to practitioners and researchers alike.

Does IPO prospectus in Malaysia disclose relevant risk?

“…In line with Zadeh et al (2016), Mohd Thas Thaker et al (2018 concluded that the risk information provided is insufficient in Malaysia. The study employed a market-adjusted method to calculate cumulative abnormal return (CAR) and panel regression to test the influence of information content and the informativeness of analyst reports towards CAR in the Malaysian market.…”

“…The scope of risk disclosure seen in annual reports of Malaysian companies is limited, with a glaring paucity of key information (Amran et al, 2008;Zadeh et al, 2016). The applicability of analyst reports is, therefore, questionable as the details presented have frequently been found wanting in explaining stock returns (Mohd Thas Thaker et al, 2018). These observations lend credence to the view that risk information obtained from companies' public reports is hardly relevant to investors' decision making (Rajgopal, 1999;Amran et al, 2008;Anagnostopoulos and Skordoulis, 2011;Zadeh et al, 2016;Mohd Thas Thaker et al, 2018).…”

Age of Firms and the Value of Analyst Recommendation

“…As young age firms are relatively new in the market, their ROE tends to increase slowly, subsequently influencing the return of stock in a positive way. Furthermore, investors usually target young growth stocks for investment purposes as these stocks tend to have increased stability with marginal increases (Mantri, 2008). Although ROE is in favor of young age firm, those firms also face higher risk.…”