Information content and informativeness of analysts’ report: evidence from Malaysia

Mohd Thas Thaker, Hassanudin * and Mohamad, A. and Mustaffa Kamil, N. K. and Duasa, J. (2018) Information content and informativeness of analysts’ report: evidence from Malaysia. Journal of Financial Reporting and Accounting, 16 (4). pp. 742-763. ISSN 1985-2517

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Purpose: This study aims to document the influence of information content and the informativeness of analyst reports towards cumulative abnormal return in the Malaysian market. Design/methodology/approach: Samples of analyst reports for the period 4th January 2010 until 24th December 2015 were collected from the Bursa Malaysia’s repository system for daily basis information. The study uses market-adjusted method for the calculation of cumulative abnormal return and panel regression to test the research objective. In addition, diagnostic tests, which include the variance inflation factor (VIF), correlation analysis, heteroscedasticity tests, serial auto-correlation and the Hausman test, were also performed to ensure the validity and reliability of the data. Findings: Result from the unbalanced panel data reveals that not all information contained in the analyst reports is able to detect stock returns movement. Only five variables are shown to have a strong association with the returns, and these are target price, earnings forecast, return on equity, cash flows to price and sales to price ratio. The R-square value has also been shown to be relatively low (0.79 per cent), indicating the low predictive power of information content and the informativeness of the analyst report in explaining stock returns. To support the findings based on the knowledge obtained, a descriptive analysis on whether the analyst reports were able to predict the recommendation accurately was performed. Result from the descriptive analysis shows that only 57 per cent of the recommendations are accurate, evidenced by the differing target price and ending price. This outcome appears to contradict the theory of signalling hypothesis. Hence, it can be concluded that analyst reports have less informational role among investors. Originality/value: This paper has, thus, provided insight into how information disclosed in the analyst report influence the return of stocks, further extending the limited research on analyst report in the context of the Malaysian markets. The paper has also added to the existing literature by providing several implications to practitioners and researchers alike.

Item Type: Article
Uncontrolled Keywords: Malaysia; informativeness; information content; analysts' report; panel regression; G10; G11; G12
Subjects: H Social Sciences > HF Commerce
Divisions: Others > Non Sunway Academics
Sunway University > Sunway Business School [formerly Sunway University Business School until 2023] > Dept. Economics & Finance
Depositing User: Dr Janaki Sinnasamy
Related URLs:
Date Deposited: 29 Sep 2020 02:21
Last Modified: 07 Oct 2020 04:08

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