Does Equity Analyst Research Lack Rigour and Objectivity? Evidence from Conference Call Questions and Research Notes

Forthcoming in Accounting and Business Research 2017

50 Pages Posted: 2 Aug 2016

See all articles by Catherine Salzedo

Catherine Salzedo

Lancaster University - Department of Accounting and Finance

Steven Young

Lancaster University - Department of Accounting and Finance

Mahmoud El-Haj

Lancaster University - School of Computing and Communications; Lancaster University

Date Written: August 1, 2016

Abstract

Doubts have been raised about the rigour and objectivity of sell-side analysts’ research due to institutional structures that promote pro-management behaviour. However, research in psychology stresses the importance of controlling for biases in individuals’ inherent cognitive processing behaviour when drawing conclusions about their propensity to undertake careful scientific analysis. Using social cognition theory, we predict that the rigour and objectivity evident in analyst research is more pronounced following unexpected news in general and unexpected bad news in particular. We evaluate this prediction against the null hypothesis that analyst research consistently lacks rigour and objectivity to maintain good relations with management. Using U.S. firm earnings surprises as our conditioning event, we examine the content of analysts’ conference call questions and research notes to assess the properties of their research. We find that analysts’ notes and conference call questions display material levels of rigour and objectivity when earnings news is unexpectedly positive, and that these characteristics are more pronounced in response to unexpectedly poor earnings news. Results are consistent with analysts’ innate cognitive processing response counteracting institutional considerations when attributional search incentives are strong. Exploratory analysis suggests that studying verbal and written outputs provides a more

Keywords: Corporate reporting, mixed methods, capital markets, textual analysis, analyst reports, conference calls

JEL Classification: G3, M4

Suggested Citation

Salzedo, Catherine and Young, Steven and El-Haj, Mahmoud, Does Equity Analyst Research Lack Rigour and Objectivity? Evidence from Conference Call Questions and Research Notes (August 1, 2016). Forthcoming in Accounting and Business Research 2017. Available at SSRN: https://ssrn.com/abstract=2816917

Catherine Salzedo (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom
+44(0) 1524 592735 (Phone)

Steven Young

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+441 5245-94242 (Phone)
+441 5248-47321 (Fax)

Mahmoud El-Haj

Lancaster University - School of Computing and Communications ( email )

InfoLab21
Bailrigg
Lancaster, LA1 4WA
United Kingdom
+44 1524-510348 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/staff/elhaj/

Lancaster University ( email )

InfoLab21, South Drive
Lancaster University
Lancaster, LA1 4WA
United Kingdom
1524510348 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/staff/elhaj

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