How do Banking Analysts behave around Unanticipated News? Evidence from Operational Risk Event Announcements

Forthcoming in The European Journal of Finance

116 Pages Posted: 15 Apr 2020 Last revised: 13 Apr 2021

See all articles by Hurvashee Gya

Hurvashee Gya

Nottingham University Business School

Ahmed Barakat

Nottingham University Business School

Kevin Amess

Nottingham University Business School

Anna Chernobai

Syracuse University - M. J. Whitman School of Management

Date Written: March 22, 2020

Abstract

We study earnings per share (EPS) forecast revision and accuracy of banking analysts around operational risk event announcements in U.S. banks. We find that first announcements of operational risk events are more informative than their settlement announcements. Optimistic banking analysts revise their forecasts downward more aggressively around operational risk disclosures, thereby improving forecast accuracy. Career concerns of banking analysts cause an upward bias in forecast revision and deterioration in forecast accuracy only if the potential employer is a systemically important bank (SIB). We find consistent evidence linking competition among banking analysts with optimistic and inaccurate forecasts, which is consistent with analysts seeking to use inflated forecasts to curry favour and attract businesses to their brokerage house around the time of operational risk disclosures. Global settlement has no favourable impact on analyst forecast accuracy around operational risk event announcements. We find evidence supporting a materiality threshold of $10 million for the informativeness of operational risk event announcements in SIBs. Overall, our results shed light on optimism bias in banking analyst behaviour upon the arrival of unanticipated news.

Keywords: Operational risk, unanticipated news, banking analyst, forecast revision and accuracy, career concerns, analyst competition, optimism bias

JEL Classification: G14, G21, G41

Suggested Citation

Gya, Hurvashee and Barakat, Ahmed and Amess, Kevin and Chernobai, Anna, How do Banking Analysts behave around Unanticipated News? Evidence from Operational Risk Event Announcements (March 22, 2020). Forthcoming in The European Journal of Finance, Available at SSRN: https://ssrn.com/abstract=3558906 or http://dx.doi.org/10.2139/ssrn.3558906

Hurvashee Gya

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Ahmed Barakat (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Kevin Amess

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

HOME PAGE: http://www.nottingham.ac.uk/business/lizka1.html

Anna Chernobai

Syracuse University - M. J. Whitman School of Management ( email )

721 University Ave
Syracuse, NY 13244-2450
United States
(315) 443 3357 (Phone)

HOME PAGE: http://https://sites.google.com/a/g.syr.edu/anna-chernobai/

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