Why are recommendations optimistic? Evidence from analysts’ coverage initiations

Why are recommendations optimistic? Evidence from analysts’ coverage initiations We examine the long-term stock performance of analyst recommendations and the properties of accompanied earnings forecasts for initiations and non-initiations to evaluate the reporting, selection, and processing explanations for analyst optimism. We find that Strong Buy and, to a lesser degree, Buy initiation recommendations underperform their non-initiation counterparts after controlling for analyst, brokerage, and firm characteristics associated with the initiation decision and expected long-term stock returns. Yet, earnings forecasts accompanying Strong Buy and Buy initiation recommendations are less optimistic and more accurate than those accompanying non-initiation recommendations. Our findings suggest that conflicts of interest (that is, the reporting explanation) are the dominant source for favorable recommendations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Why are recommendations optimistic? Evidence from analysts’ coverage initiations

Loading next page...
 
/lp/springer_journal/why-are-recommendations-optimistic-evidence-from-analysts-coverage-Od3kpPq0ZQ
Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-011-9163-6
Publisher site
See Article on Publisher Site

Abstract

We examine the long-term stock performance of analyst recommendations and the properties of accompanied earnings forecasts for initiations and non-initiations to evaluate the reporting, selection, and processing explanations for analyst optimism. We find that Strong Buy and, to a lesser degree, Buy initiation recommendations underperform their non-initiation counterparts after controlling for analyst, brokerage, and firm characteristics associated with the initiation decision and expected long-term stock returns. Yet, earnings forecasts accompanying Strong Buy and Buy initiation recommendations are less optimistic and more accurate than those accompanying non-initiation recommendations. Our findings suggest that conflicts of interest (that is, the reporting explanation) are the dominant source for favorable recommendations.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jul 16, 2011

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from Google Scholar, PubMed
Create lists to organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off