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Do analysts really anchor? Evidence from credit risk and suppressed negative information

Samar Ashour and Hao, (Grace) Qing

Journal of Banking & Finance, 2019, vol. 98, issue C, 183-197

Abstract: Recent findings indicate that stock analysts suffer from anchoring bias as they anchor their earnings per share forecasts on the industry median without making sufficient adjustments. Using a sample of firms rated by Standard and Poor's, we determine that this finding is concentrated in the worst rated firms, especially around credit rating downgrades. The driving force of the finding is that stock analysts suppress negative information for high credit risk stocks by dropping coverage instead of issuing low earnings per share forecasts, especially around credit rating downgrades. Our finding explains not only why stock analysts seem to suffer from anchoring bias, but also why analysts are overly optimistic for high credit risk stocks.

Keywords: Analyst over-optimism; Analysts’ forecast errors; Suppressed negative information; Credit rating; Credit risk; Anchoring (search for similar items in EconPapers)
JEL-codes: G14 G12 G02 G11 D03 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:jbfina:v:98:y:2019:i:c:p:183-197