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

Gya, Hurvashee; Barakat, Ahmed; Amess, Kevin; Chernobai, Anna

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.

Citation

Gya, H., Barakat, A., Amess, K., & Chernobai, A. (2021). How do banking analysts behave around unanticipated news? Evidence from operational risk event announcements. European Journal of Finance, 27(14), 1351-1391. https://doi.org/10.1080/1351847X.2020.1870518

• Journal Article Type: Article
• Acceptance Date: Dec 21, 2020
• Online Publication Date: Feb 2, 2021
• Publication Date: 2021
• Deposit Date: Jan 5, 2021
• Publicly Available Date: Aug 3, 2022
• Journal: European Journal of Finance
• Print ISSN: 1351-847X
• Electronic ISSN: 1466-4364
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 27
• Issue: 14
• Pages: 1351-1391
• DOI: https://doi.org/10.1080/1351847X.2020.1870518
• Keywords: Operational risk; unanticipated news; banking analyst; forecast revision and accuracy; career concerns; analyst competition; optimism bias
• Public URL: https://nottingham-repository.worktribe.com/output/5201650
• Publisher URL: https://www.tandfonline.com/doi/full/10.1080/1351847X.2020.1870518
• Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 2 Feb 2021, available online: http://www.tandfonline.com/10.1080/1351847X.2020.1870518