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Analysts’ stock recommendations, earnings growth and risk
Author(s) -
Peasnell Kenneth,
Yin Yuan,
Lubberink Martien
Publication year - 2018
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12202
Subject(s) - unobservable , earnings growth , earnings , stock (firearms) , term (time) , business , growth stock , economics , earnings per share , actuarial science , financial economics , accounting , finance , econometrics , restricted stock , stock market , mechanical engineering , paleontology , horse , engineering , biology , physics , quantum mechanics
A key output of sell‐side analysts is their recommendations to investors as to whether they should, buy, hold or sell a company's shares. However, relatively little is known regarding the determinants of those recommendations. This study considers this question, presenting results that suggest that recommendations are dependent on analysts’ short‐term and long‐term earnings growth forecasts, as well as on proxies for the analysts’ unobservable views on earnings growth in the more distant future and risk. Furthermore, analysts who appear to incorporate earnings growth beyond the long‐term growth forecast horizons and risk into their recommendation decisions make more profitable stock recommendations.