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Do analyst recommendations matter for rival companies?

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  • Li, Yi
  • Shen, Dehua
  • Wang, Pengfei
  • Zhang, Wei

Abstract

In this paper, we revisit the information spillover produced by analyst recommendations in the context of IPOs in China. Contrary to the contagion effect documented in the previous literature, we find a competitive effect, i.e., positive analyst recommendations on rival firms will decrease the first-day return of IPO stocks while negative analyst recommendations on rival firms will increase the first-day return of IPO stocks. The conclusions are robust to different proxies and windows, as well as different industry classifications. Moreover, by examining IPO stocks' comovement with the market and long-term performance, we demonstrate that this finding cannot be fully explained by hypotheses such as sentiment contagion or biased offering prices. Besides, we also show that this finding is more pronounced in highly competitive and correlated industries.

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  • Li, Yi & Shen, Dehua & Wang, Pengfei & Zhang, Wei, 2019. "Do analyst recommendations matter for rival companies?," International Review of Financial Analysis, Elsevier, vol. 65(C).
  • Handle: RePEc:eee:finana:v:65:y:2019:i:c:s1057521919300675
    DOI: 10.1016/j.irfa.2019.101380
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    Cited by:

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    More about this item

    Keywords

    Information spillover; Analyst recommendation; IPO underpricing;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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