Accounting information and analyst stock recommendation decisions: a content analysis approach

Abstract We explore the information set used by sell-side equity analysts in their stock recommendation decisions through content analysis of their company reports. In particular, we assess the relative importance of accounting measures compared with non-financial information items. We conclude that whereas accounting information is of fundamental importance to analysts, it is not the only, nor even the most important, source. Financial analysts are equally concerned with the firm's management and strategy and its trading environment in arriving at their investment recommendations. Our results have implications in terms of enhancing the relevance of financial reporting to key user constituencies.

[1]  Eric Abrahamson,et al.  THE INFORMATION CONTENT OF THE PRESIDENT'S LETTER TO SHAREHOLDERS , 1996 .

[2]  Charles E. Osgood,et al.  Evaluative assertion analysis. , 1956 .

[3]  Mark H. Lang,et al.  Corporate Disclosure Policy and Analyst Behavior , 1998 .

[4]  J. Cramer,et al.  Objectives of financial statements , 1973 .

[5]  John L. Holland.  Private disclosure and financial reporting , 1998 .

[6]  G. Gniewosz,et al.  The Share Investment Decision Process and Information Use: An Exploratory Case Study , 1990 .

[7]  S. Brooks Marshall,et al.  Content Analysis of Information Cited in Reports of Sell-Side Financial Analysts , 1998 .

[8]  A. DeMaris,et al.  Logit Modelling: Practical Applications , 1994 .

[9]  R. Barker.  FRS3 and analysts' use of earnings , 2000 .

[10]  Marinus J. Bouwman,et al.  How do financial analysts make decisions? A process model of the investment screening decision , 1987 .

[11]  Rebecca J. Morris,et al.  Computerized Content Analysis in Management Research: A Demonstration of Advantages & Limitations , 1994 .

[12]  Stanley F. Biggs,et al.  Financial analysts' information search in the assessment of corporate earning power , 1984 .

[13]  R. Taffler,et al.  Creative Accounting and Investment Analyst Response , 1995 .

[14]  C. Osgood,et al.  The Measurement of Meaning , 1958 .

[15]  Jennifer Francis,et al.  The relative informativeness of analysts' stock recommendations and earnings forecast revisions , 1997 .

[16]  V. Govindarajan,et al.  The objectives of financial statements: An empirical study of the use of cash flow and earnings by security analysts , 1980 .

[17]  R. Taffler,et al.  The chairman’s statement ‐ A content analysis of discretionary narrative disclosures , 2000 .

[18]  Kent L. Womack.  Do Brokerage Analysts' Recommendations Have Investment Value? , 1996 .

[19]  R. Weber.  Basic Content Analysis , 1986 .

[20]  Maureen F. McNichols,et al.  Underwriting relationships, analysts' earnings forecasts and investment recommendations , 1998 .

[21]  Brad M. Barber,et al.  Can Investors Profit from the Prophets? Consensus Analyst Recommendations and Stock Returns , 1998 .