Recent research finds that many analyst recommendation revisions take place shortly after earnings announcements. Altinkilic and Hansen (2009) attribute the clustering of recommendations to analysts strategically piggybacking on earnings information to improve the perceived performance of their recommendations. This study proposes an alternative view: I find that analysts issue recommendations when they face greater demand from investors, when the relative supply of information available on earnings announcements is higher and when they detect mispricings. These results are consistent with analysts striving to meet the demands of investors by providing useful recommendations after earnings announcements.

The ability to elicit information is a critical skill that many analysts and other information agents strive to master. This paper develops and validates a novel approach to measure analysts’ skill in eliciting information and studies its relation with analysts’ performance. The results suggest that analysts who are skilled in eliciting information issue more accurate forecasts and more informative stock recommendations. Further, skilled analysts’ recommendations are incrementally more informative for companies with more opaque information environments and with managers who may be delaying bad news. Finally, analysts skilled in eliciting information are more likely to be cited by journalists, recognized by the profession (Institutional Investor all-star status), and less likely to be demoted. These findings demonstrate the importance of elicitation as a distinct skill that influences analysts’ output quality, thereby extending previous research that generally focuses on the performance effects of general analyst characteristics rather than specific skills. Data Availability: Data are available from the public sources cited in the text.

Contemporary Accounting ResearchVolume 29, Issue 2 p. 621-654 R&D Intensity and the Value of Analysts’ Recommendations* DAN PALMON, DAN PALMON Rutgers UniversitySearch for more papers by this authorARI YEZEGEL, ARI YEZEGEL Bentley UniversitySearch for more papers by this author DAN PALMON, DAN PALMON Rutgers UniversitySearch for more papers by this authorARI YEZEGEL, ARI YEZEGEL Bentley UniversitySearch for more papers by this author First published: 25 June 2011 https://doi.org/10.1111/j.1911-3846.2011.01117.xCitations: 30 † Accepted by Jeffrey Callen. We would like to thank Sudipta Basu (discussant), Jeffrey Callen (associate editor), Alia Crocker, Rani Hoitash, Pyungkyung Kang, Ann Medinets, Bharat Sarath, Ephraim F. Sudit, the anonymous referees of this Journal, and seminar participants at Bentley University, Lehigh University, Penn State at Great Valley, and the University of Delaware for their valuable comments and suggestions. We also benefited from comments of participants at the American Accounting Association 2008 Annual Meeting and American Accounting Association 2009 Northeast Region Meeting. This research was supported in part by a Faculty Research Grant from Rutgers Business School—Newark and New Brunswick. Ari Yezegel acknowledges the generous financial support provided by Bentley University through the FAC grant. All errors are the authors’ responsibility. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume29, Issue2Summer 2012 (June)Pages 621-654 RelatedInformation

We investigate whether cross-listing shares in the form of depositary receipts in overseas markets benefits investors in emerging market countries during periods of local financial crisis from 1994 to 2002. We regress cumulative abnormal returns for three windows surrounding the crisis events on the cross-listing status while controlling for cross-sectional differences in firm age, trading volume, foreign exposure, disclosure quality and corporate governance. Further, we examine cross-listing effects in countries popularly thought to experience contagious effects of these crises. We find that cross-listed firms react significantly less negatively than non-cross-listed firms, particularly in the aftermath of the crisis. The results on contagious cross-listing effects are however mixed. Our findings are consistent with predictions based on theories of market segmentation as well as differential disclosure/governance between developed and emerging markets. We do not find evidence that foreign investors “panic” during a currency crisis.

Using financial institution mergers as exogenous shocks to common ownership, we find that stock prices of commonly held firms incorporate future earnings news more quickly and are less sensitive to noise trades. Our analyses show that the increase in price informativeness is associated with: (1) increases in disclosure, (2) enhanced information production and diffusion, and (3) active trading by common owners. Further, we find that the investment sensitivity to Tobin's Q for commonly held firms is higher, indicating that managers of such firms rely more on market prices for information. These results are robust to controlling for the financial crisis, and to alternative control groups. Our findings suggest that common ownership has a positive effect on information production and influences real corporate decision by improving price informativeness.

We examine the relation between voluntary disclosure and the value of analysts' research by studying the change in the informativeness of analysts' research after managers stop providing quarterly guidance to investors. We find that the market reaction to analysts' recommendation revisions increases significantly after guidance stoppage, controlling for confounding factors as well as for firm and time fixed effects. The increase in market reaction is greater for firms with more opaque information environments and for firms that previously provided disaggregated guidance. Further, the effect of guidance stoppage on the informativeness of analysts' research reverses after managers resume guidance. Finally, textual analyses of analysts' reports before and after guidance stoppage reveal that analysts issue longer, more frequent, and more detailed reports that convey more forward‐looking information after stoppages. These findings collectively shed light on the relation between the supply of voluntary disclosure and the value that sell‐side analysts add to price discovery in capital markets.

This paper investigates factors associated with high‐quality Enterprise Risk Management ( ERM ) programs in financial services firms, and whether ERM quality enhances performance and signals credibility to the financial markets. ERM , developed with the assistance of the accounting profession, provides a framework and plan to integrate management of all sources of risk. Challenged by measurement difficulties common to research on management control systems, prior ERM studies present mixed findings. Using ERM quality ratings of financial companies by Standard & Poor's, we find that higher ERM quality is associated with greater complexity, less resource constraint, and better corporate governance. Controlling for such characteristics, we find that higher ERM quality is associated with improved accounting performance. Results show a market reaction to signals of enhanced management control from initial ERM quality ratings and rating revisions, and a stronger response to earnings surprises for firms with higher ERM quality. Focusing on the recent global financial crisis, our analysis suggests that there is no relation between ERM quality and market performance prior to and during the market collapse. However, returns of higher ERM quality companies are higher during the market rebound. Overall, results reveal that firm performance and value are enhanced by high‐quality controls that integrate risk management efforts across the firm, enabling better oversight of managers' risk‐taking behavior and aligning that behavior with the strategic direction of the company.

We examine how the 2016 Municipal Advisor Regulatory Reform, which professionalized municipal advisors by imposing standards of conduct and minimum competency requirements, affected advisory firms and issuers. Using a difference-in-differences (DiD) research design, we find that the reform improved the quality of financial advice provided by independent municipal advisory firms relative to dealer firms. Specifically, independent municipal advisors assemble higher-quality financing teams and ensure greater financial disclosure compliance and timeliness in the post-reform period. These improvements provide tangible economic benefits to issuers through lower bond issuance costs and smaller underwriter fees. Finally, we document that independent advisory firms gain market share and charge higher fees relative to dealer firms after the reform. Overall, our study provides novel evidence linking the professionalization of financial intermediaries to improvements in the quality of advice, financial transparency, and issuer borrowing costs. Data Availability: Data are available from the commercial and public sources identified in the paper.