Analyzing Financial Analysts: What They Look for in Financial Reports and How They Determine Earnings' Quality

4739 WordsOct 22, 201019 Pages
Analyzing Financial Analysts: What They Look for in Financial Reports and How They Determine Earnings' Quality Carol M Graham, Mark V Cannice, Todd L Sayre. Journal of Management Research. New Delhi: Aug 2002. Vol. 2, Iss. 2; pg. 63, 10 pgs Abstract (Summary) The impact that financial analysts have on the share prices of publicly held companies has come under increasing scrutiny. However, despite the role they play in the financial markets, surprisingly little is known about the way in which analysts evaluate companies', report financial information or how they assess the quality of companies' earnings. We surveyed 34 financial analysts across 18 industries to address two issues in tandem - their use of financial information and their…show more content…
The results from this study ought to be useful in providing managers with some guidance as to the specific information analysts believe contributes most to high quality earnings. Given that higher quality earnings are likely to be attached a higher multiple by analysts for valuation purposes, this information should be particularly important for managers wishing to maximize the market value of their company's shares. While previous research has provided insights into some of the issues pertinent to this analysis (Arnold and Moizer, 1984; Bricker et al., 1994), we are not aware of any study that has jointly investigated the concept of earnings' quality and the use of financial information by investment analysts using a surveybased approach. As such, this study is unique with respect to its scope and methodology. Research Method We surveyed financial analysts across 18 industries in an attempt to gain a better understanding of how they use financial information and how they determine earnings' quality. Surveys have the ability to elicit valuable pieces of information that may not be readily available from other sources. Unlike previous research, our study relies on the direct responses from analysts rather than indirectly via content analysis, protocol analysis or via inferences based on analysts' rankings. As such, the results obtained are less likely to be misconstrued, and the inferences drawn should prove

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