Why are recommendations optimistic? Evidence from analysts' coverage initiations

• 成果类型: Article
• 署名作者: Ertimur, Yonca; Muslu, Volkan; Zhang, Frank
• 署名单位: Duke University; University of Texas System; University of Texas Dallas; Yale University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-011-9163-6
• 发表日期: 2011
• 页码: 679-718
• 关键词: LONG-RUN PERFORMANCE; EARNINGS FORECASTS; self-selection; reputation; IMPACT; incentives; management; decisions; accuracy; returns

摘要

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.