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Article
Publication date: 23 March 2022

Arit Chaudhury, Seshadev Sahoo and Varun Dawar

In the backdrop of emerging market setting of India, this study aims to attempt to identify how Institutional investors use sell side analyst outputs for their…

Abstract

Purpose

In the backdrop of emerging market setting of India, this study aims to attempt to identify how Institutional investors use sell side analyst outputs for their decision-making processes in light of inherent biases in their forecasts and recommendations. The study also conceptualizes the role of internal buy side teams in the process and try to figure out the key attributes and services provided by sell side analysts, which provide maximum value to the investors.

Design/methodology/approach

The study is centered upon in-depth semi-structured interviews of ten institutional investors from top Indian asset management companies covering a wide range of topics tied back to theoretical explanations. The data collected was transcribed, coded and analyzed using content analysis to ensure a systematic synthesis of point of view.

Findings

The findings show that internal analyst teams of institutional investors play a dominant role in terms of validation of sell side analysts’ outputs (given the inherent biases in sell side analyst forecasts). Further, the engagement of sell side analysts by the investors are determined not only through profitable recommendations but also on the basis of soundness of the investment rationale along with other services provided. Finally, this study puts into perspective, the critical role of analyst industry knowledge and access to company management (as opposed to analyst pedigree and forecast accuracy) for institutional investors decision-making.

Practical implications

The findings of the paper have profound implications for various stakeholders such as companies, sell side analysts, policy makers, researchers and students of finance in terms of detailed understanding of investment processes of institutional investors in the context of emerging markets like India, which have a different legal and regulatory set-up compared to developed markets. The authors also provide a critical perspective through an intriguing paradox that exists between finance theory and its relevance for actual practitioners.

Originality/value

To the best of the authors’ knowledge, this is the first study in India which look inside the “black box” of institutional investors and their decision-making process, especially with respect to how they use sell side outputs.

Details

Qualitative Research in Financial Markets, vol. 14 no. 5
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 17 April 2009

Subhash Abhayawansa and Indra Abeysekera

Research on the use/disclosure of intellectual capital (IC) information by sell‐side analysts, using content analysis of their reports, is growing. This paper aims to…

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Abstract

Purpose

Research on the use/disclosure of intellectual capital (IC) information by sell‐side analysts, using content analysis of their reports, is growing. This paper aims to establish the importance of this perspective in understanding the role of IC in communicating firm value, to introduce possible theoretical frameworks to interpret the findings of such studies, and to propose methodological developments.

Design/methodology/approach

The paper argues for the need to look at IC from the perspective of sell‐side analysts, and then advocates the use of several theoretical frameworks to enrich current understanding of the role of IC as it is used/disclosed by sell‐side analysts. Current methodologies used in this type of research are critiqued with a view to proposing multiple research methods.

Findings

Looking at IC from the sell‐side analyst perspective helps us to understand how the capital market appreciates this information. However, IC information that analysts disclose cannot be taken at its face value. Issues of signalling, analysts' incentives/influences, political economy view and globalisation are introduced as providing theoretical frameworks for explaining IC disclosure in sell‐side analysts' reports. To obtain a richer picture of the role of IC information in analysts' decision processes, multiple research methods are proposed.

Practical implications

The proposals in this paper may inform and guide future research on IC information use/disclosure by sell‐side analysts with theoretical underpinnings and methodological rigour.

Originality/value

This paper is the first attempt to propose possible theories for interpreting findings of studies on IC use/discsloure by sell‐side analysts and suggest multiple research methodologies in this type of research.

Details

Journal of Intellectual Capital, vol. 10 no. 2
Type: Research Article
ISSN: 1469-1930

Keywords

Article
Publication date: 15 February 2016

Shahed Imam and Crawford Spence

The purpose of this paper is to shed light on the nature of the work that financial analysts actually do in the context of the market for information and to further open…

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Abstract

Purpose

The purpose of this paper is to shed light on the nature of the work that financial analysts actually do in the context of the market for information and to further open up research in this area to qualitative and sociological inquiry.

Design/methodology/approach

A field study with 49 financial analysts (both buy-side and sell-side) was undertaken in order to understand the work that they actually do. This field study was theoretically informed by the sociology of Pierre Bourdieu.

Findings

The authors find, in contrast to both conventional wisdom and assumptions in prior (mostly quantitative) literature, that the primary value of sell-side analyst work lies not in the recommendations that analysts ultimately produce, but in the rich contextual information that they provide to buy-side analysts. In order to successfully provide this information, analysts have to embody large amounts of technical capital into their habitus.

Research limitations/implications

Much research in this area erroneously presumes that forecasting is the primary function of analysts. Analyst work needs to be understood as multifarious and requiring a well-developed habitus that is attuned to the accumulation of both technical and social capital. Future qualitative research might usefully explore in more detail the way in which corporate managers interact with analysts. The present study solicits the viewpoints only of the analysts themselves. The organisational context of the analysts was not explored in detail and the interviews were pre-crisis, which possibly explains why the technical capital of sell-side analysts was extolled by interviewees rather than lambasted.

Originality/value

The paper is one of few studies to look at analysts from a qualitative and sociological perspective. It both complements and extends both emerging sociological work on financial intermediaries and qualitative work on the “market for information”.

Details

Accounting, Auditing & Accountability Journal, vol. 29 no. 2
Type: Research Article
ISSN: 0951-3574

Keywords

Article
Publication date: 3 April 2020

Ameen Qasem, Norhani Aripin and Wan Nordin Wan-Hussin

The purpose of this paper is to examine the influence of financial restatements on the sell-side analysts' stock recommendations.

Abstract

Purpose

The purpose of this paper is to examine the influence of financial restatements on the sell-side analysts' stock recommendations.

Design/methodology/approach

The sample of this study is based on a dataset from a panel of 246 Malaysian public listed companies for the period 2008 to 2013 (651 company-year observations). This study employs feasible generalized least squares regression.

Findings

This study finds a negative and significant relationship between restated companies and sell-side analysts' stock recommendations, which means that sell-side analysts issue less favorable stock recommendations for restated companies.

Practical implications

The findings based on observations from an emerging economy complement the results of the US studies that analysts revise their earnings forecasts or recommendations downwards or drop coverage following financial restatements. The results of this study should be useful to capital market participants in understanding how analysts perceive and evaluate restated companies.

Originality/value

This paper expands the literature on financial restatements consequences in an emerging market which is largely unstudied. Prior research on analyst behavior towards restatements has focused on the consequences of restatements in terms of analyst following and forecast accuracy and dispersion. This study examines if and how the restatements affect the analysts' final output as reflected in the recommendation opinion, an area that has so far received little attention.

Details

International Journal of Managerial Finance, vol. 16 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 October 2006

Per Flöstrand

The objective of this paper is to examine the use of indicators of intellectual capital (IC) by financial analysts employed by brokerage firms, so‐called “sell‐side

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Abstract

Purpose

The objective of this paper is to examine the use of indicators of intellectual capital (IC) by financial analysts employed by brokerage firms, so‐called “sell‐side analysts”, and based on the findings draw conclusions on the perceived usefulness of different categories of indicators.

Design/methodology/approach

The basis for the paper is a content analysis of 250 sell‐side financial analyst reports written on a respective number of randomly selected S&P 500 companies. The study describes the use of IC information as leading indicators of future performance and identifies the contextual factors related to the use of such indicators.

Findings

The results reveal frequent use of IC indicators in analyst reports. Statistical analysis of the results indicates industry to be a contextual factor that is significantly related to the number of indicators used. Moreover, a majority of the IC indicators refer to relational capital, whereas indicators on human and structural capital are less frequent.

Originality/value

Information on the use of IC indicators is relevant to companies in their information disclosure process. Furthermore, understanding the behavior of users of financial information facilitates the work of standard setters.

Details

Journal of Intellectual Capital, vol. 7 no. 4
Type: Research Article
ISSN: 1469-1930

Keywords

Article
Publication date: 10 April 2007

Jeaneth Johansson

The purpose of this paper is to increase the transparency of the value‐creation chain in the stock market. It aims to: conceptualize the value‐added through the relational…

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Abstract

Purpose

The purpose of this paper is to increase the transparency of the value‐creation chain in the stock market. It aims to: conceptualize the value‐added through the relational capital, inductively develop models on how values are created, and discuss the values created for the analyst firm, the clients and investors in the stock market in general.

Design/methodology/approach

The paper is based on a case study of sell‐side analysts at a big Swedish investment bank and their work with real life situations of changes in recommendations.

Findings

The findings of the case study indicate that analysts, through their relational capital, access competitive advantages needed for remaining on a highly competitive market. They get access to value‐added information and knowledge and also business for the firm. This helps them to fulfill the three roles played, i.e. as information intermediaries, knowledge builders and businessmen. However, the analysts' dependencies, due to their relational capital and the analysts' conflicting roles, result in ambiguous or even biased information. The values added to clients differ between prioritized clients who receive value‐added information through the relational capital with the analysts and non‐prioritized clients with limited, or no access, to the analysts' services.

Originality/value

Value created through relational capital within organizations has been intensively studied within the area of intellectual capital. However, the sell‐side analysts' value‐creation chain linked to their relational capital with company representatives and clients, considered in the present study, has been neglected.

Details

Journal of Human Resource Costing & Accounting, vol. 11 no. 1
Type: Research Article
ISSN: 1401-338X

Keywords

Article
Publication date: 19 March 2018

Subhash Abhayawansa, Mark Aleksanyan and Suresh Cuganesan

The purpose of this paper is to test the performativity of intellectual capital (IC) from the perspective of sell-side analysts, a type of actor who consumes and creates…

Abstract

Purpose

The purpose of this paper is to test the performativity of intellectual capital (IC) from the perspective of sell-side analysts, a type of actor who consumes and creates IC information and in whose practice IC information plays a significant role.

Design/methodology/approach

The empirical component of the study comprises a narrative analysis of the text of a large corpus of sell-side analysts’ initiation coverage reports. The authors adopt Mouritsen’s (2006) performative and ostensive conceptualisations of IC as the theoretical framework.

Findings

The authors find that the identities and properties of IC elements are variable, dynamic and transformative. The relevance of IC elements in the eyes of analysts is conditional on the context, temporally contingent and bestowed indirectly. IC elements are attributed to firm value both directly, in a linear manner, and indirectly, via various non-linear interrelationships established with other IC elements, tangible capital and financial capital.

Research limitations/implications

This study challenges the conventional IC research paradigm and contributes towards a performativity-inspired conceptualisation of IC and a resultant situated model of IC in place of a predictive model.

Originality/value

This is the first study to apply a performative lens to study IC identities, roles and relationships from the perspective of a field of practice that is external to the organisation where IC is hosted. Examining IC from analysts’ perspective is important because not only can it provide an alternative perspective of IC, it also enables an understanding of analysts’ field of practice.

Details

Accounting, Auditing & Accountability Journal, vol. 31 no. 3
Type: Research Article
ISSN: 0951-3574

Keywords

Article
Publication date: 29 June 2018

Myungsun Kim, Robert Kim, Onook Oh and H. Raghav Rao

The purpose of this paper is to examine the role of online freelance stock analysts in correcting mispricing of hard-to-value firms during sentiment-driven market periods.

Abstract

Purpose

The purpose of this paper is to examine the role of online freelance stock analysts in correcting mispricing of hard-to-value firms during sentiment-driven market periods.

Design/methodology/approach

The sample covers 23,758 Seeking Alpha articles obtained for the period between January 2005 and September 2011. The authors use OLS regressions to test the stock market reaction around Seeking Alpha analysts’ reports. The information in online analysts’ reports is measured by the tone of stock articles posted in SeekingAlpha.com (SA).

Findings

The analysis reveals that the degree of negative tone of their stock articles is related to three-day stock returns around the article posting dates. It further reveals that the relation between these returns and prevailing market sentiment depends on firm-specific susceptibility to the market sentiment. The three-day stock returns are higher during low market sentiment periods for firms that are more susceptible to the market sentiment, hence, harder to value. The tone of the stock articles during low sentiment periods also predicts the news in the forthcoming earnings.

Practical implications

The findings help stock investors identify value-relevant information provided by online freelance stock analysts, particularly for hard-to-value stocks and during the low market sentiment period.

Originality/value

This study utilizes a unique dataset obtained from SA. This is the first paper to examine whether online analysts help investors correct potential undervaluation of hard-to-value firms during the low market sentiment period.

Details

Managerial Finance, vol. 44 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 12 February 2019

Souhir Khemir

The purpose of this paper is to explore the perception of environmental, social and governance (ESG) criteria by mainstream investors in an emerging financial market, that…

Abstract

Purpose

The purpose of this paper is to explore the perception of environmental, social and governance (ESG) criteria by mainstream investors in an emerging financial market, that of Tunisia, country at the origin of the Arab Spring.

Design/methodology/approach

A series of focus groups and semi-structured interviews were conducted with financial professionals.

Findings

Despite efforts by the Tunisian state to promote CSR and ESG criteria since the outbreak of the revolution of January 14th, 2011, the results show that these criteria are fairly well known by our interlocutors. As part of an investment allocation decision, the ESG criteria are considered as secondary to financial ones. The three criteria are classified as follows according to their usefulness in the investment choices of financial professionals: corporate governance, social and environmental.

Research limitations/implications

In addition to the subjective nature of the data collected, this research is limited to the input of only financial professionals. It does not inform us about ESG indicators that may influence the investment decisions of financial professionals, and thus this issue deserves further reflection.

Originality/value

This exploratory study sheds light on a little-explored topic in Tunisia, country at the origin of the Arab Spring. It contributes to the existing literature in the areas of investor behavior toward ESG criteria and adds to the limited literature in the area of emerging countries.

Details

International Journal of Emerging Markets, vol. 14 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 6 March 2017

Joanna Krasodomska and Charles H. Cho

The purpose of this study is to examine the usage of non-financial information related to corporate social responsibility (CSR) issues from the perspective of sell-side

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Abstract

Purpose

The purpose of this study is to examine the usage of non-financial information related to corporate social responsibility (CSR) issues from the perspective of sell-side analysts (SSAs) and buy-side analysts (BSAs) employed in Poland-based financial institutions.

Design/methodology/approach

The authors conducted a survey among financial analysts with the use of the computer-assisted telephone interview (CATI) method and an online questionnaire. The adopted methods included purposeful, quota sampling and snowball sampling.

Findings

Results indicate that financial analysts make use of CSR disclosures very rarely and attribute little importance to such information. Despite the limited use of CSR information and negative assessments of its quality, respondents are in favor of making a more frequent use of CSR disclosures. Finally, except for an analyst’s attitude toward the “comparability in time” information characteristic, results do not indicate any significant differences between SSAs’ and BSAs’ responses.

Research limitations/implications

The limited number of questionnaires prevented the use of more sophisticated statistical methods and the formulation of conclusions that could apply to the entire population. In addition, although the adopted CATI method provides a number of advantages, it also has its limitations – interviews had limited time and the questions along with the answers had to take into account the respondents’ limited perception ability.

Practical implications

The results of this study suggest that CSR disclosures have limited usage for financial analysts, at least in the Polish context. Further, not only do respondents rarely make use of CSR disclosures but they also give low assessments to their quality. This implies that the concept of CSR remains relatively far from becoming a priority; hence, some measures and incentives may be necessary.

Originality/value

The paper adds to a relatively small number of studies that have dealt with the issue of non-financial information and its usefulness for SSAs and BSAs in Central and Eastern Europe.

Details

Sustainability Accounting, Management and Policy Journal, vol. 8 no. 1
Type: Research Article
ISSN: 2040-8021

Keywords

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