Stock Recommendations for Politically Connected Firms

Alfonso, Elio

doi:10.1111/jbfa.12178

Cited by 13 publications

(18 citation statements)

References 65 publications

(129 reference statements)

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“…There is a negative and weakly significant relationship between politically-connected companies (POCN) and sell-side analysts' stock recommendations with a significance level of 10% (z 5 À1.71, p-value 5 0.087), which suggests that analysts issue less favorable stock recommendations for POCN. These results are consistent with the results of previous studies which find that analysts face greater difficulties when estimating earnings for politically connected firms (Chen et al, 2010) and their stock recommendations are less profitable for highly connected firms (Alfonso, 2016). With regards to the other control variables board size (BSIZE) and share return (RETURN), the results show no significant relationship between these variables and sell-side analysts' stock recommendations.…”

Section: Restatements and Analysts' Stock Recommendationssupporting

confidence: 90%

Financial restatements and sell-side analysts' stock recommendations: evidence from Malaysia

Qasem

Aripin

Wan‐Hussin

2020

IJMF

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PurposeThe purpose of this paper is to examine the influence of financial restatements on the sell-side analysts' stock recommendations.Design/methodology/approachThe sample of this study is based on a dataset from a panel of 246 Malaysian public listed companies for the period 2008 to 2013 (651 company-year observations). This study employs feasible generalized least squares regression.FindingsThis study finds a negative and significant relationship between restated companies and sell-side analysts' stock recommendations, which means that sell-side analysts issue less favorable stock recommendations for restated companies.Practical implicationsThe findings based on observations from an emerging economy complement the results of the US studies that analysts revise their earnings forecasts or recommendations downwards or drop coverage following financial restatements. The results of this study should be useful to capital market participants in understanding how analysts perceive and evaluate restated companies.Originality/valueThis paper expands the literature on financial restatements consequences in an emerging market which is largely unstudied. Prior research on analyst behavior towards restatements has focused on the consequences of restatements in terms of analyst following and forecast accuracy and dispersion. This study examines if and how the restatements affect the analysts' final output as reflected in the recommendation opinion, an area that has so far received little attention.

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Section: Restatements and Analysts' Stock Recommendationssupporting

confidence: 90%

Financial restatements and sell-side analysts' stock recommendations: evidence from Malaysia

Qasem

Aripin

Wan‐Hussin

2020

IJMF

View full text Add to dashboard Cite

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“…However, analyst recommendations can be "sticky" as analysts tend to reiterate their previous recommendations without any change in levels (Asquith et al, 2005;Francis and Soffer, 1997). To examine whether our results are robust to an alternative specification using stock recommendation changes, we rerun model (1) restricting our sample to stock recommendation revisions (Alfonso, 2016). 21 Specifically, we measure the profitability of upgrade and downgrade stock recommendations (CHANGE_PFT) as the market adjusted return to the recommendation over the period from the day before the recommendation revision date until the earlier of either 30 days or 2 days before the recommendation is revised.…”

Section: Changes In Stock Recommendationsmentioning

confidence: 99%

Analysts’ Cash Flow Forecast Accuracy and Recommendation Profitability

2019

JAF

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We examine whether analysts who supplement their earnings forecasts with more accurate cash flow forecasts generate more profitable recommendations. Previous research using consensus cash flow forecasts, or the issuance of cash flow forecasts fails to document a significant relation between analysts' cash flow forecasts and their stock recommendation performance. We argue that analysts' cash flow forecasts differ in quality and hypothesize that the relative accuracy of an individual analyst's cash flow forecasts is positively associated with the profitability of that analyst's stock recommendations. We find that when analysts issue both earnings and cash flow forecasts for a firm, cash flow forecast accuracy predicts stock recommendation profitability even after controlling for earnings forecast accuracy. Our findings are robust to the use of instrumental variables and the use of recommendation change in the analysis. Whether analysts also issue sales forecasts and/or long-term growth forecasts does not affect the results.

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“…Subsidies to public enterprises and bribes from managers to politicians all emerge in the model. More recently, using US data, Alfonso () finds analysts have greater difficulty forecasting the earnings of politically connected firms than those of non‐connected firms because politicians often grant political favours to firms in an unpredictable manner.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Earnings‐based Delisting Regulations and Government Subsidies

2019

Australian Accounting Review

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This paper examines who receives government subsidies when a firm faces delisting risk and how subsidies affect such a firm's performance in China. It focuses on the accounting‐based delisting rule issued in 1998 that relies heavily on the profitability of firms. Using the probit model, this study finds that subsidies are less likely to be granted to a firm that has a higher risk of being delisted than a healthy firm, but are more likely to be granted to such a firm if it is state‐owned. It is also found that having a political connection increases a firm's chance of receiving subsidies, but such an effect disappears when a firm faces a delisting risk. In assessing the impact of a subsidy on firm performance, this study shows that a subsidy increases a firm's valuation and profitability for firms at delisting risk.

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Stock Recommendations for Politically Connected Firms

Cited by 13 publications

References 65 publications

Financial restatements and sell-side analysts' stock recommendations: evidence from Malaysia

Financial restatements and sell-side analysts' stock recommendations: evidence from Malaysia

Analysts’ Cash Flow Forecast Accuracy and Recommendation Profitability

Earnings‐based Delisting Regulations and Government Subsidies

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