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Do analysts really anchor? Evidence from credit risk and suppressed negative information

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  • Ashour, Samar
  • Hao, (Grace) Qing

Abstract

Recent findings indicate that stock analysts suffer from anchoring bias as they anchor their earnings per share forecasts on the industry median without making sufficient adjustments. Using a sample of firms rated by Standard and Poor's, we determine that this finding is concentrated in the worst rated firms, especially around credit rating downgrades. The driving force of the finding is that stock analysts suppress negative information for high credit risk stocks by dropping coverage instead of issuing low earnings per share forecasts, especially around credit rating downgrades. Our finding explains not only why stock analysts seem to suffer from anchoring bias, but also why analysts are overly optimistic for high credit risk stocks.

Suggested Citation

  • Ashour, Samar & Hao, (Grace) Qing, 2019. "Do analysts really anchor? Evidence from credit risk and suppressed negative information," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 183-197.
    • Handle: RePEc:eee:jbfina:v:98:y:2019:i:c:p:183-197
    DOI: 10.1016/j.jbankfin.2018.11.006
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Ping & Wang, Yiru, 2023. "The bright side of analyst coverage on corporate innovation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    2. Li, Fengfei & Lin, Chen & Lin, Tse-Chun, 2021. "Salient anchor and analyst recommendation downgrade," Journal of Corporate Finance, Elsevier, vol. 69(C).
    3. Acar Berkan & Becchetti Leonardo & Manfredonia Stefano, 2021. "Media coverage, corporate social irresponsibility conduct, and financial analysts' performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(5), pages 1456-1470, September.

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    More about this item

    Keywords

    Analyst over-optimism; Analysts’ forecast errors; Suppressed negative information; Credit rating; Credit risk; Anchoring;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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