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Investor Reaction to Celebrity Analysts: The Case of Earnings Forecast Revisions

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  • SARAH E. BONNER
  • ARTUR HUGON
  • BEVERLY R. WALTHER

Abstract

ABSTRACT We examine the effects of analysts' celebrity on investor reaction to earnings forecast revisions. We measure celebrity as the quantity of media coverage analysts receive in sources included in the Dow Jones Interactive database, and find that media coverage is positively related to investor reaction to forecast revisions. The effect of celebrity on the reaction to forecast revisions remains significant after controlling for forecast performance variables examined in prior studies (ex post forecast accuracy, ex ante accuracy, award status, and other variables shown to be related to forecast accuracy). While these results are consistent with the familiarity of the analyst's name affecting the market reaction, we cannot rule out that our measure of celebrity is correlated with error in the performance measures we examine and/or correlated with other unexamined dimensions of forecast performance. A content analysis of a random subsample of the media coverage of our sample analysts suggests that our findings likely are not due to the increased availability of forecast revisions. Finally, an investigation of the excess returns around the quarterly earnings announcement date suggests that market participants react too strongly to forecast revisions issued by analysts with high levels of media coverage. Taken together, these findings suggest that an analyst's level of media coverage can affect the initial market reaction to his forecast revisions. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2007.

Suggested Citation

  • Sarah E. Bonner & Artur Hugon & Beverly R. Walther, 2007. "Investor Reaction to Celebrity Analysts: The Case of Earnings Forecast Revisions," Journal of Accounting Research, Wiley Blackwell, vol. 45(3), pages 481-513, June.
  • Handle: RePEc:bla:joares:v:45:y:2007:i:3:p:481-513
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    Citations

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    Cited by:

    1. Chia-Wei Chen & Christos Pantzalis & Jung Chul Park, 2013. "Press Coverage And Stock Price Deviation From Fundamental Value," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(2), pages 175-214, June.
    2. Olivier Driessens, 2015. "On the epistemology and operationalisation of celebrity," LSE Research Online Documents on Economics 62291, London School of Economics and Political Science, LSE Library.
    3. Lily Fang & Ayako Yasuda, 2014. "Are Stars’ Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values," Journal of Financial Services Research, Springer;Western Finance Association, vol. 46(3), pages 235-269, December.
    4. repec:eee:corfin:v:45:y:2017:i:c:p:104-121 is not listed on IDEAS
    5. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    6. Danling Jiang & Alok Kumar & Kelvin K. F. Law, 2016. "Political contributions and analyst behavior," Review of Accounting Studies, Springer, vol. 21(1), pages 37-88, March.
    7. Chen, Wei & Tan, Hun-Tong, 2013. "Judgment effects of familiarity with an analyst’s name," Accounting, Organizations and Society, Elsevier, vol. 38(3), pages 214-227.
    8. Xu, Nianhang & Chan, Kam C. & Jiang, Xuanyu & Yi, Zhihong, 2013. "Do star analysts know more firm-specific information? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 89-102.

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