Understanding the Direction, Magnitude, and Joint Effects of Reputation When Multiple Actors’ Reputations Collide

Abstract

Despite extensive research efforts into the effects of reputation, virtually all of it has examined the effect of one type of reputation on one or more specific outcomes. But, how, for example, might the reputations of analysts, CEOs, and firms individually and jointly affect firm outcomes? To answer this question, the present study focuses on a context in which reputations are particularly relevant: changes in analyst recommendations and the effect of those changes on stock market reactions. Our study contributes to the increasing reputation literature by being one of the first to recognize and measure how the market accounts for multiple reputations. Further, we argue and find that the reputations of different actors interact with each other when determining particular firm outcomes. We also find that different actor's reputations influence the reactions of observers. 1 While we recognize that there are other related constructs, such as status or prestige, that are conceptually similar to reputation, reputation is the focus of our study. A number of recent articles have undertaken to clarify distinctions among these constructs (e.g.,

Analyzing Analyst Research: A Review of Past Coverage and Recommendations for Future Research

“…example, earnings pressure results in trade-offs regarding short-term versus long-term investments (e.g., Boivie et al 2016) and analyst coverage and analysts' specialization by industry appear to create tensions for balancing incremental versus radical technological and organizational transformations (e.g., Benner, 2007;Gentry & Shen, 2013;Tripsas, 2009). …”

“…For example, drawing on social status theory, prior studies have argued and find that there is a remarkable difference in the perceived quality and status of analysts. Star analysts are known to have greater influence on investors, are more prone to CEO favor-rendering, and more readily accept organizational change (e.g., Boivie et al 2016;Ioannou & Serafeim, 2015;Westphal & Clement, 2008).…”

“…Especially analysts' social status has been shown to be an important factor in how investors perceive their evaluations. For example, Boivie, Graffin, and Gentry (2016) Within the investment community, All-America analysts are considered to be the best among their peers and to make more accurate earnings forecasts and more profitable stock recommendations (Stickel, 1992;. Because they make more accurate forecasts, Boivie et al (2016) propose and find that investors react more strongly to changes in stock recommendations issued by star analysts than those issued by non-star analysts.…”

“…For example, Boivie, Graffin, and Gentry (2016) Within the investment community, All-America analysts are considered to be the best among their peers and to make more accurate earnings forecasts and more profitable stock recommendations (Stickel, 1992;. Because they make more accurate forecasts, Boivie et al (2016) propose and find that investors react more strongly to changes in stock recommendations issued by star analysts than those issued by non-star analysts. In addition, they also propose and find that star analysts have a greater impact than either CEO reputation or firm reputation on the stock market response to changes in analyst recommendations.…”

Common Threats and Managing Reputation in Executive Search Firms

“…Key stakeholders such as clients may not accept new claims uncritically (Harvey, Morris and Müller Santos, 2017). Indeed, this represents a common challenge across multiple types of PSFs, because assessing the quality of individuals and organizations is notoriously difficult and reputation provides reassurance to third parties by signalling a collective analysis of quality (Boivie, Graffin and Gentry, 2016). Indeed, this represents a common challenge across multiple types of PSFs, because assessing the quality of individuals and organizations is notoriously difficult and reputation provides reassurance to third parties by signalling a collective analysis of quality (Boivie, Graffin and Gentry, 2016).…”