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Article
Publication date: 1 July 2003

Andreas Krause

Recent evidence suggests that financial analysts have substantial conflicts of interest when publishing their research reports. We argue that not only investors but also…

Abstract

Recent evidence suggests that financial analysts have substantial conflicts of interest when publishing their research reports. We argue that not only investors but also listed companies benefit from analyst coverage and suggest that the financial burden of such coverage be shifted entirely to those companies. This article presents a detailed evaluation of a not‐widely‐known proposal that stock exchanges ensure analyst coverage for the companies they list through a levy on their listing fees. We discuss key aspects of the regulatory framework required to ensure the independence of these financial analysts as well as some of its shortcomings. We conclude that this proposal has the potential to ensure the independence of financial analysts more efficiently than the current regulatory approach does.

Details

Journal of Investment Compliance, vol. 4 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 20 March 2007

Carlos F. Gomes, Mahmoud M. Yasin and João V. Lisboa

The objective of this study is to shed some light on the information flow between executives and financial analysts in the context of manufacturing performance measurement…

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Abstract

Purpose

The objective of this study is to shed some light on the information flow between executives and financial analysts in the context of manufacturing performance measurement and evaluation.

Design/methodology/approach

The predictive value, information availability and frequency of performance measures used by the sampled manufacturing organizations and financial analysts are compared using multiple regression analysis.

Findings

The findings of this study clearly underscore the increasing significance of non‐financial and non‐traditional performance measures. The importance of customer‐based and quality‐related measures is noted.

Research limitations/implications

The sample used in this study is specific in nature. It consisted of Portuguese manufacturing organizations and Portuguese financial analysts. Thus, the results should be interpreted accordingly.

Practical implications

The findings of this study have clear implications for organizational information systems. Re‐engineering of organizational information systems is called for toward closing the information gaps which exist in the context of organizational performance measurement.

Originality/value

This study has both practical and theoretical value, as it empirically explores the practical implications of some important issues related to organizational performance.

Details

International Journal of Productivity and Performance Management, vol. 56 no. 3
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 17 May 2011

Jing Wang, Jim Haslam and Claire Marston

The purpose of this paper is to provide insights into recent financial analysis practice in the Chinese context. The paper aims to examine the approaches pursued and…

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Abstract

Purpose

The purpose of this paper is to provide insights into recent financial analysis practice in the Chinese context. The paper aims to examine the approaches pursued and information used by Chinese financial analysts in investment appraisal of ordinary shares. The research seeks to explore influences upon analysts' decision making and how analysts perceived the Chinese investment environment.

Design/methodology/approach

A questionnaire based survey approach was used, conducted in 2003 with 65 Chinese financial analysts.

Findings

The findings indicate that fundamental analysis was the predominant technique adopted in appraising equities in line with the development of institutional investors and improved market efficiency. Regarding information used to analyse companies, annual reports constituted the most influential source. The Chinese analysts favoured usage of International Financial Reporting Standards (IFRSs) and International Accounting Standards (IASs) by A‐share companies. The findings indicate changes within the financial analyst community, suggesting pressure for higher quality analysis and increased use of more sophisticated techniques despite ongoing market shortcomings. Opinions vary as to how important financial analysis is in influencing stock valuation or, crucially, socio‐economic welfare. However, studies putting the analysts' role in perspective vis‐à‐vis other forces contribute to broadening understanding of this significantly under researched area. This current study contributes to filling this gap.

Originality/value

This paper provides insights into how specific country contexts influence financial analysts' investment appraisal practice in interims of incentives, information sources and techniques adopted.

Details

Asian Review of Accounting, vol. 19 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 8 May 2017

Amal Hamrouni, Ramzi Benkraiem and Majdi Karmani

This paper aims to investigate whether a high level of voluntary disclosure attracts sell-side analysts. In other words, the authors check whether the number of analysts

Abstract

Purpose

This paper aims to investigate whether a high level of voluntary disclosure attracts sell-side analysts. In other words, the authors check whether the number of analysts following a given firm increases with the extent of voluntary information that corporate managers provide in annual reports.

Design/methodology/approach

The paper relies on regression analyses to study the relationship between the level of coverage by sell-side analysts and the extent of voluntary disclosure for a sample of 155 non-financial firms listed on the Euronext Paris stock exchange and members of the SBF 250 index.

Findings

The empirical results show that the number of analysts following a given firm increases with the extent of voluntary disclosure. Consequently, the authors conclude that analysts are interested in the volume of information provided voluntarily by corporate managers. Their interest varies across the voluntary-information categories (strategic, financial, non-financial and governance) disclosed in annual reports.

Originality/value

This study extends previous research by investigating sell-side analysts’ preferences in terms of voluntary-information categories in annual reports. A better understanding of the effects of sub-categories of voluntary information is useful to corporate managers wishing to meet market expectations and attract sell-side analysts. In fact, the authors verify how each category of disclosed information (strategic, financial, non-financial and governance) affects the analyst coverage intensity. In addition, the authors apply our study in the rather interesting empirical setting that is France, which is characterized by a low investor protection and a large number of active analysts.

Details

Review of Accounting and Finance, vol. 16 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

Book part
Publication date: 1 November 2018

Ahmed Bouteska

The aim of this paper is to analyze the impact of corporate governance (focused on some key mechanisms as board size, board independence, managerial ownership…

Abstract

The aim of this paper is to analyze the impact of corporate governance (focused on some key mechanisms as board size, board independence, managerial ownership, institutional ownership, and chief executive officer duality) on financial analysts’ behavior in US. Results from panel data analysis for 294 US listed firms observed from 2007 to 2014 show that several attributes of the board of directors and audit committee have no effects on the number of analysts who are following the firm and the properties of analysts’ earnings forecasts. Findings also suggest that firms with independent and large boards and blockholders ownership benefit of more analyst following. In addition, it is proven that analysts’ earnings forecasts are optimistic and more accurate for companies where blockholder ownership, either by managers or external entities have larger quoted spreads but of lower quality for the ones which have greater independent board members and institutional investor’s holding.

Details

International Corporate Governance and Regulation
Type: Book
ISBN: 978-1-78756-536-4

Keywords

Article
Publication date: 3 December 2020

Hui Liu, Bei Yang and Junrui Zhang

This paper aims to focus on the role of financial analysts in corporate fraud in the Chinese stock market.

Abstract

Purpose

This paper aims to focus on the role of financial analysts in corporate fraud in the Chinese stock market.

Design/methodology/approach

Data on the analyst coverage and all the types of corporate fraud were obtained for 16,284 company-year observations of Chinese companies. The sample was subsequently divided into those of state-owned enterprises, before and after financial crisis.

Findings

The overall results indicate that analyst coverage effectively deters the occurrence of fraud. The sub-sample results suggest that the impact of analysts on deterring fraud is more pronounced in non-state-owned enterprises, especially after the financial crisis. The path analyses show that analyst coverage can deter corporate frauds by affecting information transparency and investor attention. Furthermore, the results show that the deterrence role of financial analysts varies with fraud types: it is more pronounced in deterring disclosure fraud, but not as effective in illegal guarantees and illegal insider dealing. Moreover, analyst coverage can deter the occurrence of fictitious reporting, intentional postponement and material omission.

Originality/value

This paper not only examined the overall fraud probability but also taking into consideration the heterogeneity of the information availability and research focus of financial analysts and examined the analysts’ impact on the occurrence of difference types of fraud. Moreover, this paper explored why financial analysts can deter corporate frauds through path analyses.

Details

Pacific Accounting Review, vol. 33 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 28 August 2008

May H. Lo and Le (Emily) Xu

The purpose of this study is to examine whether financial analysts mislead investors in recognizing the differential persistence of the three cash flow components of…

Abstract

Purpose

The purpose of this study is to examine whether financial analysts mislead investors in recognizing the differential persistence of the three cash flow components of earnings, defined by Dechow et al., in forecasting annual earnings.

Design/methodology/approach

The paper uses Mishkin's econometric approach to compare the persistence of the cash flow components within and across the historical, analysts' and investors' weightings.

Findings

It is found that financial analysts' weightings of the cash flow components are more closely aligned with the historical relations than are investors' weightings, both in direction and in magnitude. The degree of analysts' mis‐weighting is economically small and much lower than the degree of investors' mis‐weighting. Moreover, the extent of both investors' and analysts' mis‐weightings of the cash components is generally smaller for firms with greater levels of analyst following, a proxy for the quality of the information environment.

Research limitations/implications

The findings suggest that financial analysts' bias in weighting the cash components of earnings is at best a partial explanation for investors' bias.

Practical implications

This study is important to academics and the investment community that relies upon financial analysts as information intermediaries, because the ability of analysts to incorporate value‐relevant information in their published expectations may impact securities prices.

Originality/value

The study is the first to document the weightings of the cash components of earnings by financial analysts. In addition, this paper provides evidence that financial analysts, as information intermediaries, are less biased than investors in processing not only the accrual but also the cash components of earnings.

Details

Accounting Research Journal, vol. 21 no. 1
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 3 August 2015

Shengnian Wang, Liang Han and Weiting Gao

This paper aims to make a comparison, different from existing literature solely focusing on voluntary earnings forecasts and ex post earnings surprise, between the effects…

Abstract

Purpose

This paper aims to make a comparison, different from existing literature solely focusing on voluntary earnings forecasts and ex post earnings surprise, between the effects of mandatory earnings surprise warnings and voluntary information disclosure issued by management teams on financial analysts in terms of the number of followings and the accuracy of earnings forecasts.

Design/methodology/approach

This paper uses panel data analysis with fixed effects on data collected from Chinese public firms between 2006 and 2010. It uses an exogenous regulation enforcement to minimise the endogeneity problem.

Findings

This paper finds that financial analysts are less likely to follow firms which mandatorily issue earnings surprise warnings ex ante than those voluntarily issue earnings forecasts. Moreover, ex post, they issue less accurate and more dispersed forecasts on former firms. The results support Brown et al.’s (2009) finding in the USA and suggest that the earnings surprise warnings affect information asymmetries.

Practical implications

This paper justifies the mandatory earnings surprise warnings policy issued by Chinese Securities Regulatory Commission in 2006.

Originality/value

Mandatory earnings surprise is a unique practical regulation for publicly listed firms in China. This paper, for the first time, provides empirical evaluation on the effectiveness of a mandatory information disclosure policy in China. Consistent with existing literature on information disclosure by public firms in other countries, this paper finds that, in China, voluntary information disclosure captures more private information than mandatory information disclosure on corporate earnings ability.

Details

Chinese Management Studies, vol. 9 no. 3
Type: Research Article
ISSN: 1750-614X

Keywords

Article
Publication date: 31 December 2007

Musa Magena, Russell Kinman and David Citron

This paper provides insight into the importance of interim reports of UK listed companies to investment analysts. The primary objective of financial reporting is assumed…

Abstract

This paper provides insight into the importance of interim reports of UK listed companies to investment analysts. The primary objective of financial reporting is assumed to be the provision of information to help investors make rational investment decisions. In this study, a survey of financial analysts and fund managers was undertaken to determine their perception of the importance of 113 items disclosed in interim reports. The main findings demonstrate that both financial analysts and fund managers perceive disclosure items in the profit and loss account and cash flow statement sections as the most important. Additionally, the results show that there are similarities between financial analysts and fund managers with regard to the relative usefulness of items in the profit and loss account, balance sheet, cash flow statements and accounting policies and notes. However, significant differences exist between the two groups with respect to management commentary information. Overall, the conclusion that can be drawn from these results is that increased disclosure in interim reports is useful to investment analysts. These findings are important for policy‐makers and companies as the views of investment analysts (as users of financial reports) are essential in the attempt to improve disclosure.

Details

Journal of Applied Accounting Research, vol. 8 no. 3
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 28 November 2019

Ahmed Bouteska and Boutheina Regaieg

The purpose of this paper is to detect quantitatively the existence of anchoring bias among financial analysts on the Tunisian stock market. Both non-parametric and…

Abstract

Purpose

The purpose of this paper is to detect quantitatively the existence of anchoring bias among financial analysts on the Tunisian stock market. Both non-parametric and parametric methods are used.

Design/methodology/approach

Two studies have been conducted over the period 2010–2014. A first analysis is non-parametric, based on observations of the sign taking by the surprise of result announcement according to the evolution of earning per share (EPS). A second analysis uses simple and multiple linear regression methods to quantify the anchor bias.

Findings

Non-parametric results show that in the majority of cases, the earning per share variations are followed by unexpected earnings surprises of the same direction, which verify the hypothesis of an anchoring bias of financial analysts to the past benefits. Parametric results confirm these first findings by testing different psychological anchors’ variables. Financial analysts are found to remain anchored to the previous benefits and carry out insufficient adjustments following the announcement of the results by the companies. There is also a tendency for an over/under-reaction in changes in forecasts. Analysts’ behavior is asymmetrical depending on the sign of the forecast changes: an over-reaction for positive prediction changes and a negative reaction for negative prediction changes.

Originality/value

The evidence provided in this paper largely validates the assumptions derived from the behavioral theory particularly the lessons learned by Kaestner (2005) and Amir and Ganzach (1998). The authors conclude that financial analysts on the Tunisian stock market suffer from anchoring, optimism, over and under-reaction biases when announcing the earnings.

Details

EuroMed Journal of Business, vol. 15 no. 1
Type: Research Article
ISSN: 1450-2194

Keywords

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