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

• Main Authors: Mohd Thas Thaker, Hassanudin, Mohamad, Azhar, Mustaffa Kamil, Nazrol Kamil, Duasa, Jarita
• Format: Article
• Language: English; English; English
• Published: Emerald 2019
• Subjects: HG4501 Stocks, investment, speculation
• Online Access: http://irep.iium.edu.my/67776/7/67776_%20Information%20content%20and%20informativeness%20of%20analysts%E2%80%99%20report.pdf; http://irep.iium.edu.my/67776/13/67776%20Information%20content%20and%20informativeness%20%20WOS.pdf; http://irep.iium.edu.my/67776/19/67776_Information%20content%20and%20informativeness_SCOPUS.pdf; http://irep.iium.edu.my/67776/; https://www.emeraldinsight.com/doi/abs/10.1108/JFRA-09-2017-0087; https://doi.org/10.1108/JFRA-09-2017-0087

Purpose This study aims to document the influence of information content and the informativeness of analyst reports towards cumulative abnormal return (CAR) in the Malaysian market. Design/methodology/approach Samples of analyst reports for the period 2010, January 4th until 2015, December 24th were collected from the Bursa Malaysia’s repository system for daily basis information. The study employs market adjusted method for the calculation of CAR 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 of the information contained in the analyst reports are able to detect stock returns movement. Only five variables are shown to have 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%), indicating the low predictive power of information content and the informativeness of the analyst report in explaining stock returns. In order to support the findings based on the knowledge obtained, a descriptive analysis on whether the analyst reports were able to predict the recommendation accurately or not was performed. Result from the descriptive analysis shows that only 57 percent 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 Malaysian market. The paper has also added to the existing literature by providing several implications to practitioners and researchers alike.