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

Abstract

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.

The Impact of NASD Rule 2711 and NYSE Rule 472 on Analyst Behavior: The Strategic Timing of Recommendations Issued on Weekends

“…However, the current study differs significantly from that of Rees et al (2014) in several aspects. Third, our research questions differ from those in Rees et al (2014) who limit the sample period to years after 2002 and study why analysts issue recommendations on weekends. Second, while Rees et al (2014) implicitly assume that analysts strategically time the release of their revisions to please the management, we attempt to test this assumption and show evidence suggesting that analysts engaging in this strategic timing maintain higher future forecast accuracy.…”

“…Focusing on a sample period after 2002, the authors observe that downgrades appear more often on weekends. First, Rees et al (2014) focus on the shortwindow market response and do not examine the longer-term drift. However, the current study differs significantly from that of Rees et al (2014) in several aspects.…”

“…Similar to our findings, their results document a smaller immediate response to unfavorable recommendations issued on weekends over a short window. Second, while Rees et al (2014) implicitly assume that analysts strategically time the release of their revisions to please the management, we attempt to test this assumption and show evidence suggesting that analysts engaging in this strategic timing maintain higher future forecast accuracy. First, Rees et al (2014) focus on the shortwindow market response and do not examine the longer-term drift.…”

Inside the “Black Box” of Sell‐Side Financial Analysts

“…We define each of these variables based on award status on the date we administered the survey. Following prior research (Bradshaw, Huang, and Tan [], Rees, Sharp, and Wong []), we use Thomson One Banker to determine whether analysts’ employers provide underwriting of debt or equity issuances ( I_Bank ). We code the last two indicator variables, Retail_Focus and HF_Focus , based on the survey responses compiled in table , to capture the extent to which retail investing clients and hedge funds are important to the analyst's employer.…”

Do Firm Size Influence Financial Analyst Research Reports and Subsequent Stock Performance

“…This conflict flows from revenue-generating businesses and access to private information (Schipper, 1991). Rees, Sharp and Wong (2017) show that, to favor firm management and access private information, security analysts tend to disclose downgrading recommendations on weekends. Ioannou and Serafeim suggest that analysts are more likely to issue optimistic recommendations for firms with high CSR performance because of agency cost of CSR investments.…”