Do Analyst Stock Recommendations Piggyback on Recent Corporate News? An Analysis of Regular-Hour and After-Hours Revisions

67 Pages Posted: 6 Jun 2014 Last revised: 3 Nov 2015

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy

K. Ramesh

Rice University

Min Shen

City University of New York - Stan Ross Department of Accountancy

Joanna S. Wu

University of Rochester - Simon Business School

Date Written: January 1, 2015

Abstract

Analysts often update their recommendations following corporate news. Questions have been raised regarding analysts’ ability to generate new information beyond recent corporate events. Employing a comprehensive database on corporate news we show that only a small minority of 27.9% of all recommendation revisions directionally confirm the information in the preceding corporate events and even these “confirming revisions” facilitate the information discovery of corporate events and thus cannot simply be dismissed as “piggybacking.” Our analysis further shows that analysts not only facilitate price discovery to corporate news through issuing trending revisions but also help reverse prevailing market sentiments following corporate news by issuing contrarian revisions. Our study is the first to investigate short-window intraday market reactions to revisions issued after hours, which account for 70% of all recommendation revisions in our sample period. Analysts’ incentives to issue revisions after hours appear to reflect demands from large institutional clients who dominate after-hours trading. More importantly, we show that the after-hours revisions are associated with significantly greater price reactions and different price reaction patterns than revisions issued during regular trading hours. Collectively, our evidence indicates that analysts are a significant source of new information beyond recent corporate news and they also help shape the market’s assessment of corporate disclosures.

Keywords: Stock recommendation, After-hours revisions, Piggybacking, Security analyst

JEL Classification: G11, G12, G14, G24, M41

Suggested Citation

Li, Edward Xuejun and Ramesh, K. and Shen, Min and Wu, Joanna, Do Analyst Stock Recommendations Piggyback on Recent Corporate News? An Analysis of Regular-Hour and After-Hours Revisions (January 1, 2015). Journal of Accounting Research, Vol. 53, Issue 4, pp. 821–861, September 2015. Available at SSRN: https://ssrn.com/abstract=2441713 or http://dx.doi.org/10.2139/ssrn.2441713

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3235 (Phone)

K. Ramesh

Rice University ( email )

236 McNair Hall
Jones Graduate School of Business
Houston, TX 77005
United States
713.348.5380 (Phone)
713.348.6296 (Fax)

Min Shen

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3230 (Phone)

Joanna Wu (Contact Author)

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160D
Rochester, NY 14627
United States
585-275-5468 (Phone)
585-442-6323 (Fax)

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