Nonprofessional Investors’ Interpretations of Expanded Analyst Ownership Disclosure

• In Event: Accounting Behavior and Organizations I

Abstract

This study examines the effects of expanded analyst ownership disclosure on nonprofessional investors’ judgment and decision-making. Applying rational choice theory to an experimental setting, we provided nonprofessional investors with an analyst’s investment recommendation and disclosed the magnitude and temporal duration of the analyst’s ownership position in the recommended firm. Participants were then required to make an investment decision. We find the magnitude and ownership duration of the analyst’s ownership interest has an interactive effect on nonprofessional investors’ decisions such that both investor confidence and investment size is smaller when the analyst discloses a large, short-term investment in the recommended firm. Further, we find evidence that analyst disclosures can affect investor confidence, which in turn, affects the amount of capital an investor is willing to commit to an investment in a covered firm. Accordingly, we find evidence to suggest that analyst ownership disclosures can affect capital market liquidity.

Authors

• Robert Neil Marley, Georgia Southern University

• Mark Joseph Mellon, University of South Florida