Evidence on the Information Content of Text in Analyst Reports

50 Pages Posted: 19 Jul 2011 Last revised: 28 Aug 2014

Allen Huang

Hong Kong University of Science and Technology - Department of Accounting

Amy Zang

Hong Kong University of Science and Technology - Department of Accounting

Rong Zheng

Hong Kong University of Science and Technology - Business School - Department of Information Systems, Business Statistics and Operations Management

Date Written: April 24, 2014

Abstract

We document that textual discussions in a sample of 363,952 analyst reports provide information to investors beyond that in the contemporaneously released earnings forecasts, stock recommendations, and target prices, and also assist investors in interpreting these signals. Cross-sectionally, we find that investors react more strongly to negative than to positive text, suggesting that analysts are especially important in propagating bad news. Additional evidence indicates that analyst report text is more useful when it places more emphasis on nonfinancial topics, is written more assertively and concisely, and when the perceived validity of other information signals in the same report is low. Finally, analyst report text is shown to have predictive value for future earnings growth in the subsequent five years.

Keywords: analyst report, naïve Bayes, textual analysis, information content

JEL Classification: D82, M41, G14, C11, K22

Suggested Citation

Huang, Allen and Zang, Amy and Zheng, Rong, Evidence on the Information Content of Text in Analyst Reports (April 24, 2014). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1888724 or http://dx.doi.org/10.2139/ssrn.1888724

Allen Huang (Contact Author)

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong
+852-23587559 (Phone)

HOME PAGE: http://www.AllenHuang.org

Amy Zang

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
Clear Water Bay, Kowloon
Hong Kong
+852-2358-7561 (Phone)

HOME PAGE: http://www.AmyZang.org

Rong Zheng

Hong Kong University of Science and Technology - Business School - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

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