Information content of analysts` report : Malaysian evidence

Abstract

This research aimed to empirically investigate the following: (i) information content of ‎analyst report on stock return; (ii) degree of informativeness in analyst report; (iii) accuracy of ‎analyst recommendation; and (iv) enhancement of information disclosure in the analyst ‎report. Samples of analyst reports collected for the purpose of analysis were 657 daily basis ‎reports dating from January 4th, 2010 to December 24th, 2015. The study employed a market-‎adjusted method for the calculation of cumulative abnormal return (CAR) and panel ‎regression to test the research objectives. Based on the models developed, the empirical ‎finding revealed the following outcomes: (i) model one showed that 66.67% of the variables ‎had significant relationship with the return (target price or TP, and earnings forecast or EF) ‎out of three information contents, (ii) model two hypothesised that only 16.67% of the ‎variables had momentous explanatory power (return of equity or ROE, and market ‎capitalization or MC) over the CAR, and (iii) finally, model three which was a combination of ‎model one and model two showed that 33.33% of the variables (target price or TP, earnings ‎forecast or EF, return on equity or ROE, cash flow to price or CFP, and sales to price ratio or ‎SPR) had substantial relationship with the CAR. Therefore, it was concluded that not all of the ‎information contained in the report had explanatory power in explaining returns. The result ‎remained the same even though the models were controlled according to different ‎segmentations such as industries, age, and beta classifications. In terms of accuracy of ‎recommendation, the study found that the percentage of accuracy was 57% based on selected ‎report, evidenced by the differing target price and ending price. Hence, it can be concluded ‎that analyst reports possess less informational role among investors. With respect to the ‎enhancement of information disclosure, the current study found that Malaysian analysts ‎tended to rely heavily on statistical justification alone in making recommendations. The ‎qualitative result suggested that analysts should consider incorporating both quantitative and ‎qualitative information which will lead to a fuller disclosure of information, an improvement ‎which is deemed necessary as the analyst report continues to constitute a salient agent in the ‎investors’ decision-making repertoire in the local context.