Reading Between the Lines: An Empirical Examination of Qualitative Attributes of Financial Analysts’ Reports
Brady J. Twedt
Indiana University - Kelley School of Business
Lynn L. Rees
Texas A&M University - Department of Accounting
September 1, 2011
Journal of Accounting and Public Policy, Vol. 31, pp. 1-21, 2012
Mays Business School Research Paper No. 2012-38
This paper examines whether two qualitative attributes of financial analysts’ reports, detail and tone, are significant in explaining how the market responds to analysts' reports, after controlling for the information contained in the reports' quantitative summary measures. Report detail is hypothesized to reflect the level of effort expended by the analyst in preparing the report, and therefore the usefulness of their intrinsic firm value estimates. Report tone is predicted to signal the analyst’s underlying sentiment regarding the firm and may be used to assess the extent to which analysts’ conflicts of interest interfere with the mapping of firm value estimates into stock recommendations. Consistent with these hypotheses, we find that the tone of financial analyst reports contain significant information content incremental to the reports’ earnings forecasts and recommendations, and report complexity (one component of report detail) helps explain cross-sectional variation in the market's response to the reports' recommendations.
Number of Pages in PDF File: 40
Keywords: Analyst reports, Report detail, Report tone, Analyst stock recommendation, Analyst earnings forecast, Information content
JEL Classification: G10, M41Accepted Paper Series
Date posted: February 23, 2011 ; Last revised: March 28, 2012
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