Is Sell-Side Research More Valuable in Bad Times?
Singapore Management University - Lee Kong Chian School of Business
René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Charles A. Dice Center Working Paper No. 2013-19
Fisher College of Business Working Paper No. 2013-03-19
Because uncertainty is high in bad times, investors find it harder to assess firm prospects and, hence, should value analyst output more. However, higher uncertainty makes analysts’ tasks harder so it is unclear if analyst output is more valuable in bad times. We find that, in bad times, analyst revisions have a larger stock-price impact, earnings forecast errors per unit of uncertainty fall, reports are more frequent and longer, and the impact of analyst output increases more for harder-to-value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.
Number of Pages in PDF File: 61
Keywords: Security Analysts; Stock Recommendations; Earnings Forecasts; Crisis; Recessions; Uncertainty
JEL Classification: G14, G20, G24
Date posted: December 18, 2013 ; Last revised: November 15, 2016