Analysts’ Assimilation of Soft Information in the Financial Press

• In Event: Analysts' Processing of Information

Abstract

Prior research establishes that both sell-side analysts and the media act as information intermediaries in the capital markets. This study investigates whether sell-side analysts use information from firm-specific print news coverage and whether analysts’ assimilation of information in the news leads to informative recommendations. We find that the quantity of news coverage of a firm is positively associated with subsequent recommendation revisions, and that the tone of the news predicts the direction of the revisions. Moreover, we document that the market reactions to analysts’ recommendation revisions are stronger for firms with greater recent news coverage, suggesting a positive relationship between the informativeness of analysts’ recommendations and the intensity of news coverage. Furthermore, we classify news into soft and hard news based on qualitative and quantitative content, and find that the link between news coverage and market reactions to analysts’ revisions is primarily driven by analysts’ assimilation of soft news. Taken together, our paper sheds new light on the sources of analysts’ mosaic of information and the role of analysts in the efficiency of the capital markets.

Authors

• Xue Wang, The Ohio State University

• Mark T Bradshaw, Boston College

• Dexin Zhou, Emory University