Favorable versus Unfavorable Recommendations: The Impact on Analyst Access to Management-Provided Information


  • We thank Thompson Financial for providing us with the data used in this study. We recognize the financial support of the University of Washington Accounting Development Fund and Professor Matsumoto recognizes the support of the Lane Daley Faculty Fellowship. We appreciate comments received from Abbie Smith (Editor), an anonymous reviewer, Helen Adams, Robert Bowen, Larry Brown, Qiang Cheng, Michael Clement, Mark DeFond, Frank Hodge, Jane Kennedy, Shiva Rajgopal, Terry Shevlin, and workshop participants at the University of Washington, the University of British Columbia, UT Austin, participants of the 2004 FARS midyear conference, and the 2004 Minnesota Empirical Accounting Conference.


This study examines recent regulatory and practitioner concerns that managers provide more (less) information to analysts with more (less) favorable stock recommendations. We examine the relative forecast accuracy of analysts before and after a recommendation issuance under the assumption that increases (decreases) in management-provided information will increase (decrease) analysts' relative forecast accuracy. We find that analysts issuing more favorable recommendations experience a greater increase in their relative forecast accuracy compared with analysts with less favorable recommendations. Additional tests on the change in frequency with which analysts issue forecasts independent of or in conjunction with other analysts after their recommendation change yield corroborating results. In addition, we find that the greater increase in relative accuracy for analysts with more favorable recommendations exists prior to the passage of Regulation FD but not after. The combined results are consistent with analysts receiving relatively more management-provided information following the issuance of more favorable recommendations.