Media Coverage of Analysts' Recommendations and Firm Share Prices

19 Pages Posted: 8 May 2011

See all articles by Nadine Galy

Nadine Galy

Toulouse Business School - Economics and Finance

Laurent Germain

Toulouse University, Toulouse Business School

Date Written: October 1, 2010

Abstract

Traditional media (newspaper, TV) play an important role in disseminating information to a broad audience. Our study puts in relation analysts' recommendations media coverage and firm value. We put forth the hypothesis that the intensity of media coverage (number of buy and sell recommendations published in newspapers or broadcast) of analysts' recommendations boosts investor recognition of companies and influences their values even if the information is repeated and not new. Our results show that the number of recommendations influences share prices in the expected sense. The number of buy recommendations positively influences the variation in share prices: the greater the number of buy recommendations, the greater the increase in share prices. Conversely, the greater the number of sell recommendations, the greater the fall in share prices. However, causality tests performed don't really confirm the direction of the relation between number of recommendations and variation in prices. Thus, investors' perception measured by past share prices changes and analysts' perception measured by the number of their recommendations published seems to reinforce each other. In this sense, the number of buy or sell recommendations published in media can create positive (or negative) feedback and reinforce existent trends.

Keywords: Analysts' recommendations, media coverage, media effect, causality study

JEL Classification: G14

Suggested Citation

Galy, Nadine and Germain, Laurent, Media Coverage of Analysts' Recommendations and Firm Share Prices (October 1, 2010). International Conference of the French Finance Association (AFFI), May 2011. Available at SSRN: https://ssrn.com/abstract=1834348

Nadine Galy (Contact Author)

Toulouse Business School - Economics and Finance ( email )

20 Boulevard Lascrosses
Toulouse, 31400
France

Laurent Germain

Toulouse University, Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31000
France

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