Three essays on the impact of analyst recommendations in the banking industry

By analyzing the information provided by analyst recommendations in the
banking industry, I find that analyst recommendations trigger an immediate impact on
the value of banks (Essay 1), they profitably guide the investment decisions of investors
for periods of up to three months (Essay 2), and they also have an immediate impact on
the values of rival banks (Essay 3). In addition, I find that analysts’ ability to provide
new information depends on the information environment of the bank. The degree of
information asymmetry, the degree of complexity, the risk of the bank, the risk of the
time period, as well as regulatory reforms that affect these characteristics, have a
significant impact on the analyst’s ability to provide new information to the investors.
Specifically, I find that analyst recommendations are more informative when
banks suffer from a high degree of information asymmetry. In addition, regulatory reforms that reduced the information asymmetry of the banking industry also diminished
the analyst’s ability to provide new information. Similarly, I find that analyst
recommendations have a greater impact on the values of the rated and the rival banks
when these banks operate in a risky environment. This result is robust to several
measures of bank risk, period risk, and regulatory events that affected the risk of the
banking industry. However, the results of Essay 2 show that positive recommendations
that occur during riskier periods or after regulatory events that increased the risk of the
banking industry result in lower value for the investors over the following 1-month or 3-
month periods. Lastly, I find that as banks become more complex, analyst
recommendations have a smaller immediate impact on the value of the bank, deliver a
smaller investment value for the investors, and also have a smaller immediate impact on the value of the rival banks.