The Informational Role of Analysts' Qualitative Research Outputs
37 Pages Posted: 19 Nov 2019
Date Written: November 6, 2019
Several studies have indicated that textual tones in analysts’ reports, a representative qualitative output of analysts’ reports, possess informational value. In this study, I clarify incremental information in the report tone. I predict a report tone as holding fundamental information that analysts have a weak incentive to incorporate into their forecasts regarding company performance. Consistent with my prediction, I find that the report tones contain incremental earnings and sales information beyond their earnings and sales forecasts. Specifically, report tones of sell-side analysts, who are reluctant to incorporate negative information into quantitative output, contain incremental negative information; in contrast, report tones of media analysts, who have a weak incentive to incorporate positive information, contain incremental positive information. Finally, the result reveals that prices underreact to sell-side analysts’ negative tone and media analysts’ positive tone, suggesting that the gradual incorporation of the fundamental information into quantitative outputs affects prices by inducing a delay in investor’s reaction to the information.
Keywords: analyst report; textual information; report tone; earnings forecasts; sales forecasts
JEL Classification: G10, G14, G20
Suggested Citation: Suggested Citation