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
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Does equity analyst research lack rigour and objectivity?
T2 - Evidence from conference call questions and research notes
AU - Salzedo, Catherine Jane
AU - Young, Steven Eric
AU - El Haj, Mahmoud
N1 - 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
PY - 2018
Y1 - 2018
N2 - 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.
AB - 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.
KW - capital markets
KW - textual analysis
KW - analyst reports
KW - conference calls
U2 - 10.1080/00014788.2016.1230487
DO - 10.1080/00014788.2016.1230487
M3 - Journal article
VL - 48
SP - 5
EP - 36
JO - Accounting and Business Research
JF - Accounting and Business Research
SN - 0001-4788
IS - 1
ER -