Do analysts practice what they preach and should investors listen? Effects of recent regulations
Article
Barniv, R, Hope, OK, Myring, MJ et al. (2009). Do analysts practice what they preach and should investors listen? Effects of recent regulations
. ACCOUNTING REVIEW, 84(4), 1015-1039. 10.2308/accr.2009.84.4.1015
Barniv, R, Hope, OK, Myring, MJ et al. (2009). Do analysts practice what they preach and should investors listen? Effects of recent regulations
. ACCOUNTING REVIEW, 84(4), 1015-1039. 10.2308/accr.2009.84.4.1015
From 1994 to 1998, Bradshaw (2004) finds that analysts' stock recom mendations relate negatively to residual income valuation estimates (scaled by current price) but positively to valuation heuristics based on the price-to-earnings-to-growth ratio and long-term growth. These results are surprising, especially considering that future returns relate positively to residual income valuation estimates and negatively to heuristics. Using a large sample of analysts for the 1993-2005 period, we consider whether recent regulatory reforms affect this apparent inconsistent analyst behavior. Consistent with the intent of these reforms, we find that the negative relation between analysts' stock recommendations and residual income valuations is diminishing follow ing regulations. We also show that residual income valuations, developed using ana lysts' earnings forecasts, relate more positively with future returns. However, we doc ument that stock recommendations continue to relate negatively with future returns. We conclude that recent regulations have affected analysts' outputs-forecasted earn ings and stock recommendations-but investors should be aware that factors other than identifying mispriced stocks continue to influence how analysts recommend stocks.
