Financial analysts earnings forecasts are more consistent with stock recommendations when their earnings forecasts are more accurate (Loh and Mian 2006, Ertimur et al. 2007). This suggests that analysts use other information in their private valuation models in addition to earnings forecasts especially when earnings have greater uncertainty. Recent studies show that political connections are important for firm valuation and are associated with future positive returns and future positive operating performance (Faccio 2006, Cooper et al. 2010). In this study, I examine how a firms political connections affect stock recommendation informativeness as well as the efficiency with which analysts translate their earnings forecasts into stock recommendations. Using data from the Federal Election Commission through the Center for Responsive Politics from 1993 2011, I first show that analysts recommendations are less informative when firms have political connections. This relation holds for both All-Star and non-All-Star analysts, upgrade and downgrade recommendations, as well as initiation and non-initiation recommendations. Second. I show that analysts earnings forecast accuracy is less consistent with recommendation informativeness when firms are politically connected. This inconsistency appears to be driven by non-All-Star analysts, upgrade recommendations, and non-initiation recommendations. The findings of this study imply that political connection information is one source of important nonfinancial disclosure that influences how analysts map their earnings forecasts into stock recommendations.
| Identifer | oai:union.ndltd.org:LSU/oai:etd.lsu.edu:etd-04152013-144121 |
| Date | 13 May 2013 |
| Creators | Alfonso, Elio |
| Contributors | Cheng, Cheng-Shing Agnes, Hollie, Dana, Song, Wei-Ling, Goidel, Robert Kirby |
| Publisher | LSU |
| Source Sets | Louisiana State University |
| Language | English |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lsu.edu/docs/available/etd-04152013-144121/ |
| Rights | unrestricted, I hereby certify that, if appropriate, I have obtained and attached herein a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to LSU or its agents the non-exclusive license to archive and make accessible, under the conditions specified below and in appropriate University policies, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. |
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