Do analysts practice what they preach and should investors listen? Effects of recent regulations

Accounting Review

Volumn 84, Issue 4, 2009, Pages 1015-1039

  Barniv, Ran ^a   Hope, Ole Kristian ^b   Myring, Mark J ^c   Thomas, Wayne B ^d  

^a KENT STATE UNIVERSITY   (United States)

^b UNIVERSITY OF TORONTO   (Canada)

^c BALL STATE UNIVERSITY   (United States)

^d UNIVERSITY OF OKLAHOMA   (United States)

Author keywords

Future returns; Regulations; Residual income valuations; Stock recommendations; Valuation heuristics

Indexed keywords

EID: 69549088850     PISSN: 00014826     EISSN: None     Source Type: Journal    
DOI: 10.2308/accr.2009.84.4.1015     Document Type: Article

References (47)

1. Abarbanell, J., and V. L. Bernard. 2000. Is the U.S. stock market myopic? Journal of Accounting Research 38 (2): 221-242.
2. Agrawal, A., S. Chadha, and M. Chen. 2006. Who is afraid of Reg FD? The behavior and performance of sell-side analysts following the SEC's Fair Disclosure rules. Journal of Business 79 (6): 2811-2834.
3. Asquith, P., M. Mikhail, and A. Au. 2005. Information content of equity analyst reports. Journal of Financial Economics 75 (2): 245-282.
4. Bailey, W., H. Li, C. Mao, and R. Zhong. 2003. Regulation fair disclosure and earnings information: Market, analyst, and corporate response. The Journal of Finance 58 (6): 2487-2514.
5. Barber, B., R. Lehavy, M. McNichols, and B. Trueman. 2001. Can investors profit from the prophets? Security analyst recommendations and stock returns. The Journal of Finance 56 (2): 531-563. (Pubitemid 33592072)
6. -, and -. 2003. Prophets and losses: Reassessing the returns to analysts' stock recommendations. Financial Analysts Journal 59 (2): 88-96.
7. -, and -. 2006. Buys, holds, and sells, the distribution of investment banks' stock ratings and the implications for the profitability of analysts' recommendations. Journal of Accounting and Economics 41(1-2): 87-117.
8. Barker, R. G. 1999. Survey and market-based evidence of industry-dependence in analysts' preferences between the dividend yield and price-earnings ratio valuation models. Journal of Business Finance & Accounting 26 (3-4): 393-418.
9. Barniv, R., O-K. Hope, M. J. Myring, and W. B. Thomas. 2008. International evidence on analyst stock recommendations, valuations, and returns. Working paper, Kent State University, Univer sity of Toronto, Ball State University, and University of Oklahoma.
10. Block, S. B. 1999. A study of financial analysts: Practice and theory. Financial Analysts Journal 55 (4): 86-95.
11. Bogle, J. C. 2002. Remaking the market: Reality bites. Wall Street Journal (November 21): A16.
12. Boni, L., and K. L. Womack. 2002. Wall Street's credibility problem: Misaligned incentives and dubious fixes? In Brookings- Wharton Papers on Financial Services-2002, edited by R. E. Litan and R. Herring, 93-124. Washington, D.C.: Brookings Institution Press.
13. Bonner, S. E., B. R. Walther, and S. M. Young. 2003. Sophistication- related differences in investors' models of the relative accuracy of analysts' forecast revisions. The Accounting Review 78 (3): 679-706.
14. Bradshaw, M. T. 2002. The use of target prices to justify sell-side analysts' stock recommendations. Accounting Horizons 16 (1): 27-41.
15. -. 2004. How do analysts use their earnings forecasts in generating stock recommendations? The Accounting Review 79 (1): 25-50.
16. -, and L. Brown. 2005. Do sell-side analysts exhibit differential target price forecasting ability? Working paper, Harvard University and Georgia State University.
17. Brown, L. D. 2001. A temporal analysis of earnings surprises: Profits versus losses. Journal of Accounting Research 39 (2): 221-242.
18. Chen, F., B. Jorgensen, and Y. K. Yoo. 2004. Implied cost of equity capital in earnings-based valuation: international evidence. Accounting and Business Research 34 (4): 323-344.
19. Das, S., C. Levine, and K. Sivaramakrishnan. 1998. Earnings predictability and bias in analysts' earnings forecasts. The Accounting Review 73 (2): 277-294.
20. Dechow, P., A. Hutton, and R. Sloan. 2000. The relation between analysts' forecasts of long-term earnings growth and stock price performance following equity offerings. Contemporary Accounting Research 17 (1): 1-32.
21. De Franco, G., H. Lu, and F. P. Vasvari. 2007. Wealth transfer effects of analysts' misleading behavior. Journal of Accounting Research 45 (1): 1-40.
22. Dugar, A., and S. Nathan. 1995. The effects of investment banking relationships on financial analysts' earning forecasts and investment recommendations. Contemporary Accounting Research 11(1): 13 1-160.
23. Easton, P. D. 2004. PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The Accounting Review 79 (1): 73-95.
24. Ertimur, Y., J. Sunder, and S. Sunder. 2007. Measure for measure: the relation between forecast accuracy and recommendation profitability of analysts. Journal of Accounting Research 45 (3): 567-606.
25. Francis, J., Q. Chen, R. H. Willis, and D. R. Philbrick. 2004. Security Analyst Independence. Char lottesville, VA: The Research Foundation of CFA Institute.
26. Frankel, R. M., and C. M. C. Lee. 1998. Accounting valuation, market expectation, and cross-sectional stock returns. Journal of Accounting and Economics 25 (3): 283-319.
27. Gimein, M. 2002. Elliot Spitzer: The enforcer. Fortune (September 16): 77-84.
28. Gleason, C., W. B. Johnson, and H. Li. 2007. The earnings forecast accuracy, valuation model use, and price target performance of sell-side equity analysts. Working paper, University of Iowa.
29. Heflin, F., K. R. Subramanyam, and Y. Zhang. 2003. Regulation FD and the financial information environment: Early evidence. The Accounting Review 78 (1): 1-37.
30. Herrmann, D., O-K. Hope, and W. B. Thomas. 2008. International diversification and forecast opti mism: The effects of Reg FD. Accounting Horizons 22 (2): 179-197.
31. Hope, O-K., T. Kang, W. B. Thomas, and Y. K. Yoo. 2009. Impact of excess auditor remuneration on cost of equity capital around the world. Journal of Accounting, Auditing and Finance 24 (2): 177-210.
32. Jegadeesh, N., J. Kim, S. Krische, and C. Lee. 2004. Analyzing the analysts: When do recommendations add value? The Journal of Finance 59 (3): 1083-1124.
33. Kadan, O., L. Madureira, R. Wang, and T. Zach. 2006. Conflicts of interest and stock recommendations-The effects of the Global Settlement and related regulations. Working paper, Washington University.
34. Ke, B., and Y. Yu. 2007. The effect of ability, independence, and investor sentiment on analysts' propensity to use their own earnings forecasts in stock recommendations. Working paper, Penn sylvania State University and University of Texas.
35. Lee, C. M. C., J. Myers, and B. Swaminathan. 1999. What is the intrinsic value of the Dow? The Journal of Finance 54 (5): 1693-1741.
36. Li, X. 2005. The persistence of relative performance in stock recommendations of sell-side financial analysts. Journal of Accounting and Economics 40 (1-3): 129-152.
37. Lim, T. 2001. Rationality and analysts' bias. The Journal of Finance 56 (1): 369-385.
38. Lin, H. W., and M. F. McNichols. 1998. Underwriting relationships, analysts' earnings forecasts and investment recommendations. Journal of Accounting and Economics 25 (1): 101-127.
39. Liu, J., D. Nissim, and J. Thomas. 2002. Equity valuation using multiples. Journal of Accounting Research 40 (1): 135-172.
40. Lynch, P. 2000. One Up On Wall Street. New York, NY: Simon and Schuster.
41. Michaely, R., and K. Womack. 1999. Conflict of interest and the credibility of underwrite analyst recommendations. Review of Financial Studies 12 (4): 653-686.
42. -, and -. 2005. Brokerage recommendations, Stylized characteristics, market responses, and biases. In Advances in Behavioral Finance II, edited by R. H. Thaler, 389-422. Princeton, NJ: Princeton University Press.
43. Mikhail, M. B., B. R. Walther, and R. H. Willis. 2004. Do security analysts exhibit persistent differ ences in stock picking ability? Journal of Financial Economics 74 (1): 67-91.
44. Ohison, J. A. 1995. Earnings, book values, and dividends in security valuation. Contemporary Ac counting Research 11(2): 661-687.
45. Securities and Exchange Commission (SEC). 2002. SEC, NY Attorney General, NASD, NASAA, NYSE and State Regulators Announce Historic Agreement to Reform Investment Practices. Press Re lease No. 2002-179, December 20, 2002. Washington, D.C.: SEC.
46. Schipper, K. 1991. Commentary on analysts' forecasts. Accounting Horizons 5 (2): 105-121.
47. Womack, K. L. 1996. Do brokerage analysts' recommendations have investment value? The Journal of Finance 51(1): 137-167.