Research On Financial Analysts' Report Title And Its Economic Consequences

After the continuous doldrums,Chinese capital market ushered in momentous institutional changes and market expansions in 2006,which also ended the losses of brokerage firms and brought back them with the growth in business performance.Owing to the Non-tradable Shares Reform,stock market's liquidity increased and forced the securities consulting services to develop rapidly.With the help of increasing demand of consulting services,securities analyst industry also stepped in a rapid growth.According to the statistics from Securities Association of China(SAC),the total number of chartered securities analysts in 2018 is 3093,which almost doubled the number in 2002.While the analyst industry is developing in a sound development,there are still challenges reserved to be solved.Meanwhile,other participants in the market also query analysts' work,like their low forecast accuracy.Besides the dissatisfaction of analysts' forecast accuracy,the “Click Bait” in analysts' reports brought a lot of criticisms from investors and media,and some brokerage firms and regulators took actions to strengthen the regulation and punishment of those eye-catching and even fallacious report title.Although analyst reports' click bait aroused market participants' attention,the discussion only concerned over typical cases,and both the motivation and influences of analysts' decision on embellishing title are not clear.And on the other hand,previous literature concentrated on the discussion of analysts' forecast,while only few papers examined the qualitative information of analysts' report and captured the textual characteristics of report text,and there is no research has ever talked about the title of analysts' report.Yet title is an important part of analysts' report and plays a crucial role in helping investors to select reports in need.Basing on the practical situation where analysts' work is in query,this paper tries to clear out analysts' behavior motivation by examining the questions about analysts' title choice behavior,and to get useful conclusions on improving analysts' report quality by understanding the influence of analysts' behavior.On the one hand,the existence of the title is a short sentence reflecting the core content of analyst report and constituting the integrity of the structure of an analyst report,on the other hand,the title is also the “face” of the analyst report and plays an important role in helping investors to select among large numbers of reports since it is the first impression to the report users.In Chinese security consulting industry,the scale effect of the analyst report is weak and the industry competition is fierce.According to the statistics of the Securities Association of China,the security companies' research institutions that participating in the survey in 2018 issued a total number of 180,300 research reports throughout the year.Facing with the analyst report market with such a high amount of information supply,investors can only read selectively due to limited attention and time.The report title is an important way to screen content when the information supply exceeds demand.Therefore,the title of the analyst report plays an important role in guiding investors to select and use research reports.Accordingly,the report title may become a cost-effective choice for analysts to cater for investors' preferences and to attract investors.Although the analyst's behavior of embellishing titles has received extensive attention from all participants in the capital market,the motivation and economic consequences of the analyst's title-selection behavior are still unclear.Identifying the characteristics of analysts' report title and investigating the analyst's title-selection behavior will enrich the research of the qualitative information of the analyst report,expand the research on the analyst's behavior and decision-making process,and provide empirical evidence on analysts' behavioral bias as well.In addition,studying the impact of analysts' title-selection behavior on the quality of earnings forecasts and market reactions can enrich the research relating to analysts' forecasts and economic consequences,and provide evidence for investors to better select and use analysts' reports.Therefore,this paper lies on the background of the disputable phenomenon of analysts' embellishing report titles and investigates the analyst title-selection behavior from the following three specific perspectives: what are the factors that affect the analyst title decision,whether the analyst title-selection behavior will affect the earning forecast quality,and whether the analyst title-selection behavior will cause different market reactions.Basing on the above analysis,this paper,under the theory of efficient market hypothesis and information asymmetry,conducts a theoretical analysis of the causes and consequences of financial analysts' title-selection behavior,and applies quantitative analysis methods to identify whether the report title issued by the analyst has the characteristics of "cyberization" and "attractiveness" by establishing a list of Network Hot Words,and form a quantitative indicator to proxy the characteristics of the analysts' report title.The empirical tests examine the factors that influence the analysts' title-selection behavior and the impact that the analyst's titleselection behavior has on the forecast quality and market reaction.Based on the database and manual sorting,this paper uses financial analysts' companyresearch reports of all A-share listed companies from 2006 to 2018 as research samples.Firstly,this paper examines the impact on analysts' choosing titles from the perspectives of report content characteristics,firm characteristics and analysts' characteristics.Empirical results show that when analysts provide more predictive indicators in the report,they are less likely to use“Hot Words” in title.When analysts follow companies with poor growth or slow revenue growth,they are more inclined to embellish the title.When the analyst's brokerage firm is larger,and when the analyst has less firm-specific experience,follows more industries,analysts are also more likely to use Hot-Word titles.Secondly,the test of report title on earnings forecast accuracy shows that forecast accuracy is lower when title includes “Hot Words”,and the result is more pronounced when analysts have better forecasting capabilities or when the signed analyst is a star,however,the negative effect from title will be alleviated when analysts work hard to provide more forecast information,yet the negative effects will still exist.Finally,this paper examines the economic consequences of analyst title-selection from the perspective of investors.Empirical results show that embellishing title will weaken the market response to earnings forecast revisions.After further considering the effect of report content,the negative effect brought by the report title and the positive effect brought by the research report content both exist,which means that the market can distinguish the effect from title and content.Besides,the loss of information transmission caused by analyst title-selection will exist regardless of the quality of the research report content,saying that the market does not accept analysts' titleselection behavior.The innovations of this paper are mainly as follows.Firstly,this paper,for the first time,takes analysts' report title as the research object,and extend a new perspective to discuss the qualitative information of analysts' report.Existing relevant research in the fields of analysts has not yet examined the titles of analyst reports.Given the disputable title-selection phenomenon in Chinese capital market,investigating the analyst's title-selection behavior is important on understanding both analysts' internal decision-making process and the external factors that influence analysts' behavior.This paper's identification of title features,and the examination of the factors and economic consequences of analysts' title-selection behavior enriches the research on the qualitative content of analyst reports and provides new research perspectives for subsequent research.Secondly,the research on the title selection behavior can also enrich research related to analysts' motivation.Previous studies on the analysts' behavior bias mainly focus on analysts' optimism bias,while the analyst's title-selection behavior is also a specific aspect of analysts' self-interested motivating behavior.Investigating analysts' titleselection behavior from the perspective of report content feature,firm characteristics and analyst characteristics help to enrich the research conclusions of analyst behavior motivation from a new perspective.Thirdly,this paper establishes quantitative indicator that reflect the feature of the analysts' report content based on all the forecast items in the analyst report and examines the effect of analyst report content from the overall perspective.Previous studies mainly focused on some certain forecast item,while this paper takes all forecast items together for the first time,which can help to more comprehensively reflect the report content and its function,and help report users to understand the role of other forecast items other than the most commonly used earnings forecast indicator.Fourthly,this paper distinguishes and examines the interaction between the title and content of the analyst report.The analyst report title and report content are usually viewed together as an analyst report,while the analyst's choice of title and content is two different decision-making processes.However,empirical results show that the effect of the title and that of the content exist at the same time.These results also provide preliminary empirical evidence for the subsequent research of the analyst's input allocation,and provide reference for analysts to adjust strategies on issuing research reports.