Managerial ability and analysts’ stock recommendations

•Sell-side analysts recommend firms with higher managerial ability more favorably.•The profitability of analyst recommendations increases when the recommendation takes managerial ability into account.•Managerial ability is a distinct and important attribute of firms in explaining analysts’ stock rec...

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Bibliographic Details
Published in:Finance research letters 2023-12, Vol.58, p.104440, Article 104440
Main Authors: Jang, Soomi, Choi, Heeick, Kovacs, Tunde, Autore, Don M.
Format: Article
Language:English
Subjects:
Analyst firm experience
Firm innovation
Information asymmetry
Managerial ability
Profitability
Stock recommendations
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Summary:•Sell-side analysts recommend firms with higher managerial ability more favorably.•The profitability of analyst recommendations increases when the recommendation takes managerial ability into account.•Managerial ability is a distinct and important attribute of firms in explaining analysts’ stock recommendations and the value of those recommendations to investors. This study examines whether analysts consider managerial ability in forming their stock recommendations and, if so, whether it improves the quality of their recommendations. We find that sell-side analysts recommend firms with higher managerial ability more favorably, suggesting that analysts value the implications of managerial ability in assessing firm value. Moreover, the profitability of analyst recommendations increases when the recommendation takes managerial ability into account. Overall, our results suggest that managerial ability is a distinct and important attribute of firms in explaining analysts’ stock recommendations and the value of those recommendations to investors.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2023.104440