Investors’ Reliance on Analysts’ Stock Recommendations and Mitigating Mechanisms for Potential Overreliance<b>*</b>

Kelly, Khim; Low, Bernardine M.; Tan, Hun‐Tong; Tan, Seet‐Koh

doi:10.1111/j.1911-3846.2011.01138.x

Cited by 41 publications

(20 citation statements)

References 34 publications

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“…Extant literature in accounting and finance regards SS analysts as important information intermediaries who provide relevant knowledge to decision makers such as investors, FMs, and brokers, primarily in the form of earnings forecasts, buy/sell recommendations, and target prices (Schipper 1991;Ramnath et al 2008;Bradshaw 2011). In other words, analyst outputs are presumed to matter for their informational content (Stickel 1995;Womack 1996;Barber et al 2001;Brav and Lehavy 2003;Asquith et al 2005;Kelly et al 2012;Twedt and Rees 2012;Huang et al 2014;De Franco et al 2015, among others). This initial inference was also supported by a systematic survey of the literature we conducted.…”

Section: Problematizing Extant Economistic Literature On Analystsmentioning

confidence: 99%

Earning the “Write to Speak”: Sell‐Side Analysts and Their Struggle to Be Heard

Spence

Aleksanyan

Millo

et al. 2019

Contemporary Accting Res

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This paper explores the ways in which sell‐side (SS) financial analysts seek to position themselves advantageously within the wider field of investment advice in spite of widespread skepticism over the value that their forecasts and recommendations add to investment decisions. The field of investment advice has been characterized in recent years by a number of regulatory and technological changes that have forced SS analysts to reconstitute the ways in which they influence the investment decisions of buy‐side (BS) actors. Faced with existential threats, SS analysts have responded to the disruptive impact of technology and regulation by struggling hard to ensure that their services are still valued by fund managers. Key to this ongoing process is the recalibration of professional expertise, which previous research has alluded to but not explored in detail. Central to the persistence of SS analysts in processes of investment decision making are activities revolving around the production and use of analyst reports which, our findings indicate, are less valuable for their informational content than their role as “relational devices,” ascribing legitimacy to SS analysts and earning them an entry ticket to more substantive, value‐adding interactions with companies and BS actors. We also show that economic considerations in the area of investment advice are influenced by social ties, the motivations of various actors in the field, and their relative position vis‐à‐vis other actors. More generally, we contribute to the literature on professional projects by showing how professional groups are constantly engaged in attempts to reposition themselves in the social space, but that field‐level changes can restrict the outcomes of these strategies to mitigation rather than advancement for the professionals concerned.

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Section: Problematizing Extant Economistic Literature On Analystsmentioning

confidence: 99%

Earning the “Write to Speak”: Sell‐Side Analysts and Their Struggle to Be Heard

Spence

Aleksanyan

Millo

et al. 2019

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

“…Yet we know relatively little about the background and knowledge of individual investors. While a small number of studies access investor groups (e.g., via investment clubs or associations, such as in Kelly et al 2012), many such studies utilize convenience samples of graduate business student participants in experiments. Thus, the current research addresses two broad questions: (i) how the background and knowledge of individual investors with different types of investment experience differ from noninvestors and (ii) how the range of individual investors' financial literacy skills (that is, their knowledge of fundamental financial concepts) impacts their investment-related judgments.…”

Section: Introductionmentioning

confidence: 99%

Investment Experience, Financial Literacy, and Investment‐Related Judgments

Krische

2019

Contemporary Accting Res

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This research examines how investment experience and financial literacy impact investment‐related judgments. Financial literacy refers to a person's knowledge of fundamental financial concepts. I begin by documenting investors' demographic characteristics and financial literacy using a relatively large sample of participants (n > 2,000) recruited from Amazon's Mechanical Turk under different categories of investment experience, which I benchmark against national samples of financial capability skills in the United States. I then replicate a sample of three accounting research experiments, varying the type and depth of the underlying accounting issue. Across the three experiments, the data show two main results: First, investment experience strengthens the influence of financial accounting disclosures on participants' investment‐related judgments. Second, financial literacy further strengthens the influence of financial accounting disclosures on investors' (but not noninvestors') judgments. Collectively, these findings suggest that investment experience and financial literacy can help to identify individuals who are more likely to be able and willing to study financial reporting information with reasonable diligence as they form their investment‐related judgments.

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“…The participants’ perceived investment potential was tested through three questions ( Kelly et al, 2012 ; Kelly and Seow, 2016 ): (1) In your opinion, how attractive is Company X’s stock as a medium- to long-term investment? (2) In your opinion, what is the potential of Company X’s stock price to appreciate over the next 3 years?…”

Section: Methodsmentioning

confidence: 99%

Enhancing Activity in the Right Temporoparietal Junction Modifies the Effect of a High CEO-to-Employee Pay Ratio on the Perceived Investment Potential in the Construction Industry

2022

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As an increasing number of governments require the disclosure of companies’ compensation information, compensation management is becoming an important part of internal management in the construction industry. Although the literature has shown that disclosing a high CEO-to-employee pay ratio will cause various effects on the decision-making of a company’s potential investors, there is little evidence on the neural basis of such effects. Given that previous neuroscience studies have shown that the right temporoparietal junction (TPJ) is associated with altruistic behaviors, this study used transcranial direct current stimulation (tDCS) to explore the role of the right TPJ in the effects of the CEO-to-employee pay ratio on potential investors’ perceived investment potential in the construction industry. The results show that enhancing activity in the right TPJ significantly reduced the perceived investment potential of female participants, especially those with no investment experience, when the company’s CEO-to-employee pay ratio is high compared to when the pay ratio is medium. This effect was not observed in male participants. The mechanisms underlying these effects of tDCS in the right TPJ on the perceived investment potential were also explored. The main contribution of this study lies in its pioneering exploration of the neural basis of investment decision-making regarding the CEO-to-employee pay ratio. Additionally, it reveals individual feature-based differences in the role of the TPJ in investment decision-making and its possible mechanisms.

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Investors’ Reliance on Analysts’ Stock Recommendations and Mitigating Mechanisms for Potential Overreliance*

Cited by 41 publications

References 34 publications

Earning the “Write to Speak”: Sell‐Side Analysts and Their Struggle to Be Heard

Earning the “Write to Speak”: Sell‐Side Analysts and Their Struggle to Be Heard

Investment Experience, Financial Literacy, and Investment‐Related Judgments

Enhancing Activity in the Right Temporoparietal Junction Modifies the Effect of a High CEO-to-Employee Pay Ratio on the Perceived Investment Potential in the Construction Industry

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