Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsi’i at Manoa Shidler College of Business boochun@hawaii.eduPhilip B. Shane* University of Auckland Business School and the Leeds School of Business at the University of Colorado at Boulder phil.shane@colorado.eduYanhua (Sunny) Yang University of Texas at Austin Red McCombs School of Business Sunny.Y Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsang@mccombs.utexas.eduCurrent version: September 2009ABSTRACT: Prior literature finds that economic incentives related to generating investment bankinDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
g business and trading commissions dominate explanations for the variation in analysis' forecasts of firms’ long-term earnings growth (LTG) and. thereDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations puzzling why stock analysts issue long-term growth forecasts that bear no relation to their effort in formulating stock recommendations that identify mispriced securities. This paper attempts to address this puzzling, but interesting question by examining whether the issuance of LTG forecasts refle Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationscts analyst effort that enhances the value-relevance of their stock recommendations. We show that the stock market responds more strongly to recommendDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
ation revisions by analysts who also issue LTG forecasts, and investors following the stock recommendations of analysts issuing LTG forecasts earn morDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationss reflect effective effort to increase the value-relevance of stock recommendations. Finally, we investigate the effect of LTG forecast issuance on analyst career outcomes and find that analysts issuing LTG forecasts are less likely to be demoted or terminated. Thus, analysts’ effort to issue LTG fo Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsrecast and effective application of LTG in making recommendations are rewarded with higher job security.JEL Classification: M41Keywords: Stock analystDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
s: Stock recommendations: Long-term earnings growth forecasts Data Availability: All data used in this study are publicly available from the sources iDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock RecommendationsAAA annual meeting for their helpful comments. Boochun Jung gratefully acknowledges financial support from the Shilder College of Business.1Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?1. IntroductionThis paper investigates whet Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsher publication of financial analysts’ forecasts of firms’ long-term earnings growth (hereafter, LTG) reflects effective effort in a valuation processDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
that makes the analysts' stock recommendations more informative than the recommendations of other analysts who do not publish LTG forecasts for the sDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsmore on a simple comparables approach rather than rigorous analysis of fundamentals potentially affecting linns' expected long-term growth and profitability. Our approach to examining the implications of analysts’ LTG forecasts makes an important contribution, because readers of research evidence in Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations prior literature could reasonably infer that analysts’ LTG forecasts are misleading and uninformative.Prior literature generally demonstrates that anDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
alysts’ LTG forecasts are optimistically biased, grossly inaccurate, and generally meaningless (e.g., La Porta 1996; Chan et al. 2003; Barniv et al. 2Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsnerate trading commissions (e.g., Lin and McNichoIs 1998; Dechow et al. 2000; Cowen et al. 2006). Using consensus recommendations and LTG forecasts, Bradshaw (2004) documents that analysts’ LTG forecasts largely explain the variation in their stock recommendations, but investment strategies based on Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations these recommendations do not generate positive stock returns.- Bradshaw1One prior study infers some value added in the LTG forecasts published by ValDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
ue Line. That study shows that Value Line publishes LTG forecasts that are more accurate than forecasts based on the average compound annual rate of gDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationslue of stock recommendations are somewhat mixed depending on the samples and research designs. However, a majority of studies generally shows that trading strategies based stock recommendations generate positive risk-adjusted returns if implemented promptly on the date of recommendation.2(2004) and, Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations more recently, Bdrniv el al. (2009) report that LTG forecasts are negatively related to future excess returns, confinning the results of La Porta (19Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
96). In addition. Liu and Thomas (2000) find that Ĩ.TG forecast revisions add little Io revisions in forecasts of current year and next year earnings Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock RecommendationsPerhaps consequently, it seems that L1G forecast accuracy is not related to analysts’ compensation (Dechow Ct al. 2000).’Overall, the extant literature implies that LTG forecasts do not come from a sophisticated process dial provides investors with useful information about films’ long-term earnings Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsprospects, nor does LTG forecasting ability appear to be associated with analysts’ compensation-related incentives. What remain puzzling, but unexplorDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
ed is why investors are consistently misled by LTG forecasts over many years (e.g.. La Porta 1996; Bamiv et al. 2009); and why any or not all analystsDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsucing seemingly nonsensical I.TG forecasts and use them in formulating slock recommendations (Bradshaw 2004; Ke and Yu 2007). Our paper addresses these issues and takes a new approach Io investigating the value-relevance of the process underlying analyst production ol I.TG forecasts.We argue Ihdl an Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsalysts who choose to make their T.TG forecasts available on the T/B/E'S database arc more likely to invest significant effort in longer-term forecastiDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
ng and tend to have1 chan Ct al. (2003) also show that after accounting for dividend yield differences, analysts do not effectively distinguish firms Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsro the compensation of analysts at a large financial institution. Although they do not specifically investigate LTG foiecast accuracy, their evidence is consistent with the inferences of Dechow Ct al. (2000) noted in the text above.3greater ability in forecasting long-term performance? Thus, we pred Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsict that other summary metrics relying on estimates of long-term performance and published by the same analysts are more informative.Prior studies maiDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
nly focus on the sample consisting of only firms with LTG forecasts available and investigate the value-relevance of LTG forecasts per se. In contrastDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationsvance of the analysts’ stock recommendations. We choose stock recommendations as the focus of our study, because they represent the ultimate product of analyst research (Schipper 1991) and their value depends on effective analysis of the subject firm’s prospects for long-term profitability. In other Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations words, we view LTG forecasts as reflective of a useful long-term orientation in analysts’ development of their recommendations. Given prior evidenceDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
that short term earnings growth rales lack persistence and that long-term earnings growth is difficult to predict (Chan et al. 2003), we expect substaDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations?*Boochun Jung University of Hawai Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationshesize that analyst’s publication of LTG forecasts signals their investment in a process that produces Slock recommendations incorporating superior forecasts of firms’ future performance.We take two approaches to testing the informativeness of stock recommendations produced by analysts who also prov Do Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendationside LTG forecasts at the time of or shortly before the publication of their stock recommendations. We examine the three-day market response to the anaDo Financial Analysts’ Long-term Growth Forecasts Reflect Effective Effort towards Informative Stock Recommendations
lyst’s recommendation revisions, and the profitability from trading on the analyst’s stock recommendations. We show that the stock market reaction isGọi ngay
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