Cultural Biases in Equity Analysis
60 Pages Posted: 19 Apr 2018 Last revised: 27 Nov 2019
Date Written: October 21, 2019
A more positive cultural trust bias by an equity analyst's country of origin toward a firm's headquarter country is associated with significantly more positive stock recommendations, controlling for analyst-month and firm-month fixed effects. The cultural bias effect is stronger for eponymous firms whose names mention their home country. The bias effect varies over time, increasing with negative sentiment. I find evidence of a negative North-South bias emerging during the European debt crisis, a UK-Europe divergence amid Brexit, and a Franco-British bias during the Iraq war. The share price reaction to buy recommendations by more positively biased analysts is weaker.
Keywords: cultural bias, trust, analyst recommendation, salience, sentiment
JEL Classification: A13, G02, G20, G24, D83
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