Does Equity Analyst Research Lack Rigor and Objectivity? Evidence from Conference Call Questions and Research Notes
50 Pages Posted: 6 May 2014
Date Written: May 5, 2014
Research questions the rigor and objectivity of analysts’ research due to the institutional structures in which they operate (Fogarty and Rogers, 2005 Accounting, Organisations and Society). However, insights from psychology highlight the need to condition this conclusion on the incentives for attributional search. Based on social cognition theory, we test whether the degree of diligence and criticality evident in analyst research is higher (lower) for negative (non-negative) schema-discrepant events. We evaluate this prediction against the null hypothesis that analyst research consistently lacks rigor and objectivity. We use earnings surprises as our schema-discrepant conditioning event, and examine the content of analysts’ conference call questions and research notes to assess the properties of their research. We find that levels of rigor and objectivity are statistically and economically higher for research conducted in response to negative earnings surprises. Findings are consistent with analysts’ innate cognitive processing response counteracting institutional considerations when attributional search incentives are strong. Results also reveal non-trivial levels of rigor and objectivity in response to non-negative schema-discrepant earnings news. Differences in the properties of analysts’ work are also evident for spoken and written modalities.
Keywords: Conference calls, research notes, earnings surprises
JEL Classification: G3, M4
Suggested Citation: Suggested Citation