Analyst Information Discovery and Interpretation Roles: A Topic Modeling Approach

51 Pages Posted: 16 Mar 2014 Last revised: 10 Nov 2016

Allen Huang

Hong Kong University of Science and Technology - Department of Accounting

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

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: November 6, 2016

Abstract

This study examines analyst information intermediary roles using a textual analysis of analyst reports and corporate disclosures. We employ a topic modeling methodology from computational linguistic research to compare the thematic content of a large sample of analyst reports issued promptly after earnings conference calls with the content of the calls themselves. We show that analysts discuss exclusive topics beyond those from conference calls and interpret topics from conference calls. In addition, we find that investors place a greater value on new information in analyst reports when managers face greater incentives to withhold value-relevant information. Analyst interpretation is particularly valuable when the processing costs of conference call information increase. Finally, we document that investors react to analyst report content that simply confirms managers’ conference call discussions. Overall, our study shows that analysts play the information intermediary roles by discovering information beyond corporate disclosures and by clarifying and confirming corporate disclosures.

Keywords: Financial Analysts; Conference Calls; Information Content; Textual Analysis; Topic Modeling

JEL Classification: M41; G24; D82; D83; C11

Suggested Citation

Huang, Allen and Lehavy, Reuven and Zang, Amy and Zheng, Rong, Analyst Information Discovery and Interpretation Roles: A Topic Modeling Approach (November 6, 2016). Ross School of Business Paper No. 1229. Available at SSRN: https://ssrn.com/abstract=2409482 or http://dx.doi.org/10.2139/ssrn.2409482

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

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

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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