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Do Firm Size Influence Financial Analyst Research Reports and Subsequent Stock Performance

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  • Huai-Chun Lo

Abstract

This study investigates whether analysts issue more favorable research reports for small stocks than for large stocks. Small stocks tend not to attract investors due to their size, bad liquidity, easily manipulated price, insufficient information, and high-uncertainty risk. If analysts follow a small stock, it might be because the firm is thought to have good prospects. This study finds that analysts report more positively on small stocks, including in their stock recommendations and earnings growth forecasts. The empirical results show that small stocks perform better in the following year than do other stocks but that this is not the case for operating performance. This finding suggests that analysts are more likely to recommend under-valued stocks, but this may not imply that the operating performance of these stocks will improve the following year.

Suggested Citation

  • Huai-Chun Lo, 2017. "Do Firm Size Influence Financial Analyst Research Reports and Subsequent Stock Performance," Accounting and Finance Research, Sciedu Press, vol. 6(4), pages 181-181, Novebmer.
    • Handle: RePEc:jfr:afr111:v:6:y:2017:i:4:p:181
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    References listed on IDEAS

    as
    1. Caylor, Marcus & Cecchini, Mark & Winchel, Jennifer, 2017. "Analysts' qualitative statements and the profitability of favorable investment recommendations," Accounting, Organizations and Society, Elsevier, vol. 57(C), pages 33-51.
    2. Yu, Fang (Frank), 2008. "Analyst coverage and earnings management," Journal of Financial Economics, Elsevier, vol. 88(2), pages 245-271, May.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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