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Information Interpretation or Information Discovery: Which Role of Analysts Do Investors Value More?

48 Pages Posted: 23 Aug 2009 Last revised: 6 Sep 2011

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Yuan Zhang

University of Texas at Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: March 2010

Abstract

This study provides evidence that a significant percentage of analyst forecast revisions are issued promptly after a broad set of corporate public disclosures and that investors perceive these prompt revisions as more valuable than non-prompt revisions. These results hold for all revisions, non-earnings announcement triggered revisions, or revisions in weeks preceding earnings announcements, and are also robust to various sensitivity tests. Investors particularly value analysts’ prompt interpretation of earnings announcements or 8-K filings. To the extent that prompt revisions are more likely to reflect analysts’ information interpretation role, our results suggest that investors value more highly analysts’ ability to interpret public disclosure, especially less structured or non-financial disclosures. Unlike Ivkovic and Jegadeesh (2004) and Chen et al. (2010) which reach the opposite conclusion, we analyze analysts’ interpretation role with respect to a broader range of significant corporate disclosures than earnings announcements alone. We also provide evidence that analyst revisions made on the day of preliminary earnings announcements or the next day are significantly associated with excess returns, even after controlling for earnings and revenue surprises and accruals available in the announcements.

JEL Classification: G34

Suggested Citation

Livnat, Joshua and Zhang, Yuan, Information Interpretation or Information Discovery: Which Role of Analysts Do Investors Value More? (March 2010). Available at SSRN: https://ssrn.com/abstract=1459025 or http://dx.doi.org/10.2139/ssrn.1459025

Joshua Livnat (Contact Author)

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)

Prudential Financial - Quantitative Management Associates ( email )

2 Gateway Center
6th Fl.
Newark, NJ 07102
United States

Yuan Zhang

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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