How do banking analysts behave around unanticipated news? Evidence from operational risk event announcements

Hurvashee Gya, Ahmed Barakat, Kevin Amess, Anna Chernobai

Research output: Contribution to journalArticlepeer-review

Abstract

We study earnings per share (EPS) forecast revision and accuracy of banking analysts around operational risk event announcements in U.S. banks. We find that first announcements of operational risk events are more informative than their settlement announcements. Optimistic banking analysts revise their forecasts downward more aggressively around operational risk disclosures, thereby improving forecast accuracy. Career concerns of banking analysts cause an upward bias in forecast revision and deterioration in forecast accuracy only if the potential employer is a systemically important bank (SIB). We find consistent evidence linking competition among banking analysts with optimistic and inaccurate forecasts, which is consistent with analysts seeking to use inflated forecasts to curry favour and attract businesses to their brokerage house around the time of operational risk disclosures. Global settlement has no favourable impact on analyst forecast accuracy around operational risk event announcements. We find evidence supporting a materiality threshold of $10 million for the informativeness of operational risk event announcements in SIBs. Overall, our results shed light on optimism bias in banking analyst behaviour upon the arrival of unanticipated news.

Original languageEnglish (US)
JournalEuropean Journal of Finance
DOIs
StateAccepted/In press - 2021

Keywords

  • analyst competition
  • banking analyst
  • career concerns
  • forecast revision and accuracy
  • Operational risk
  • optimism bias
  • unanticipated news

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

Fingerprint

Dive into the research topics of 'How do banking analysts behave around unanticipated news? Evidence from operational risk event announcements'. Together they form a unique fingerprint.

Cite this