The use of information by financial analysts during a financial crisis

This study examines the relevance of information set in sell‐side analysts' publicly available reports during the recent financial crisis. Prior studies suggest that analysts use more nonfinancial than financial information to support stock recommendations but there is little academic research on what information is relevant to them during periods of serious economic stress. We analyzed 90 analysts' reports from three subperiods (a) precrisis (2006–2007), (b) crisis (2007–2009), and (c) postcrisis (2009–2010). Our findings suggest that during the crisis period, analysts focus more on specific sets of information such as cost control and strength of management whereas in the noncrisis period they focus more on information related to earnings and market outlook. The importance of the interdependency of financial and nonfinancial information is evident in their recommendation especially in crisis and postcrisis period as we find joint use of both set of information to support their recommendations. We conclude that although nonfinancial information may have been used more frequently and jointly to support recommendations, it is financial information which ultimately guides analysts' recommendations both in good times and in bad.