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Analysts' incentives and usage of valuation models
Dissertation   Open access

Analysts' incentives and usage of valuation models

Shaowen Hua
Doctor of Philosophy (Ph.D.), Drexel University
Dec 2013
DOI:
https://doi.org/10.17918/etd-4370
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Abstract

Business analysts Price-earnings ratio Accounting
This dissertation explores how analysts' underwriting and trading incentives direct their use of valuation methods to generate stock recommendations. Using brokerage firm-level underwriting and trading data from 1998 to 2011, I find that analysts' underwriting incentives contribute to conflicting research outputs generated through both residual income models and simple heuristic models. I also find that trading incentives reduce conflicting messages obtained using residual income models, but not those generated by simple heuristic models. My study expands our knowledge of analysts' valuation process by documenting how underwriting and trading incentives affect the transformation of earnings forecasts into stock recommendations.

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