The impact of analyst sentiment on UK stock recommendations and target prices

© 2015 Taylor & Francis. The aim of this paper is to investigate the relationship between narrative sentiment in analysts' company reports and their recommendation and target price outputs. We study an industry-balanced sample of 275 UK quoted company sell-side analyst reports over the period 2006-2010 using a content analysis methodology to measure net sentiment for a range of themes. We then model analysts' outputs against themed sentiment scores to analyse the impact of the Global Financial Crisis. We find that themed sentiments impact upon analysts' outputs, but their magnitude and direction vary over the pre-crisis, crisis and post-crisis periods. In particular, before the crisis we find a strong negative relationship between the macroeconomic and regulatory environment and report outputs, though this effect diminishes somewhat with the onset of the crisis, to be restored thereafter. Growth sentiment exerts a weak positive impact before the crisis which disappears thereafter. Financial performance sentiment becomes a significant positive driver of outputs following the crisis. There is evidently a "back to basics" approach following the crisis which restores financial fundamentals to the heart of stock analysis. Our findings provide some insight into the thought processes of analysts by identifying the dynamic relation between analysts' outputs and themed sentiments

Financial estimates against investors’ preferences:anchoring, denial and spillover effects

This experimental study investigates how the characteristics of an estimate in a sensitivity disclosure and the level of threat it presents to investors' preferences interact to influence investors’ risk judgments. Firstly, I predict and find that variation in an estimate affects not only investors’ judgment on a related issue but also their future judgments on an unrelated issue. Secondly, I predict and find that investors are more sensitive to variations in an estimate when information contained in the estimate presents less threat to their preferred conclusions than when it presents greater threat. Finally, I predict and find that investors perceive more uncertainty regarding the association between the disclosed risk factor and the estimated financial reporting item in the estimate when the information presents greater threat

Outperforming markets: IC and the long-term performance of Japanese IPOs

This article studies the effects of disclosure practices of Japanese IPO prospectuses on long-term stock performance and bid–ask spread, as a proxy for cost of capital, after a company is admitted to the stock exchange. A disclosure index methodology is applied to 120 IPO prospectuses from 2003. Intellectual capital information leads to significantly better long-term performance against a reference portfolio, and is thus important to the capital market. Further, superior disclosure of IC reduces bid–ask spread in the long-term, indicating that such disclosures are important in an IPO setting. Analysts and investors can attain higher long-term returns by understanding IC

An investigation of the impact of data breach severity on the readability of mandatory data breach notification letters: evidence from U.S. firms

The aim of this article is to investigate the impact of data breach severity on the readability of mandatory data breach notification letters. Using a content analysis approach to determine data breach severity attributes (measured by the total number of breached records, type of data accessed, the source of the data breach, and how the data were used), in conjunction with readability measures (reading complexity, numerical intensity, length of letter, word size, and unique words), 512 data breach incidents from 281 U.S. firms across the 2012–2015 period were examined. The results indicate that data breach severity has a positive impact on reading complexity, length of letter, word size, and unique words, and a negative impact on numerical terms. Interpreting the results collectively through the lens of impression management, it can be inferred that business managers may be attempting to obfuscate bad news associated with high data breach severity incidents by manipulating syntactical features of the data breach notification letters in a way that makes the message difficult for individuals to comprehend. The study contributes to the information studies and impression management behavior literatures by analyzing linguistic cues in notifications following a data breach incident