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  • SSRN-id2816917

    Rights statement: This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 15/11/2016, available online: http://www.tandfonline.com/10.1080/00014788.2016.1230487

    Accepted author manuscript, 765 KB, PDF-document

    Available under license: CC BY-NC: Creative Commons Attribution-NonCommercial 4.0 International License

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Does equity analyst research lack rigour and objectivity?: Evidence from conference call questions and research notes

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>2018
<mark>Journal</mark>Accounting and Business Research
Issue number1
Volume48
Number of pages32
Pages (from-to)5-36
Publication statusPublished
Early online date15/11/16
Original languageEnglish

Abstract

Doubts have been raised about the rigour and objectivity of sell-side analysts’ research due to institutional structures that promote pro-management behaviour. However, research in psychology stresses the importance of controlling for biases in individuals’ inherent cognitive processing behaviour when drawing conclusions about their propensity to undertake careful scientific analysis. Using social cognition theory, we predict that the rigour and objectivity evident in analyst research is more pronounced following unexpected news in general and unexpected bad news in particular. We evaluate this prediction against the null hypothesis that analyst research consistently lacks rigour and objectivity to maintain good relations with management. Using U.S. firm earnings surprises as our conditioning event, we examine the content of analysts’ conference call questions and research notes to assess the properties of their research. We find that analysts’ notes and conference call questions display material levels of rigour and objectivity when earnings news is unexpectedly positive, and that these characteristics are more pronounced in response to unexpectedly poor earnings news. Results are consistent with analysts’ innate cognitive processing response counteracting institutional considerations when attributional search incentives are strong. Exploratory analysis suggests that studying verbal and written outputs provides a more complete picture of analysts’ work.

Bibliographic note

This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 15/11/2016, available online: http://www.tandfonline.com/10.1080/00014788.2016.1230487