An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Andrew Anabila
Pace University

Feng Chen
Columbia University

Baruch Lev
New York University

Abstract: In this paper we assess the extent to which sell-side analysts exploit available financial performance signals (i.e., FSCORE in Piotroski 2000 and GSCORE in Mohanram 2005) in making research outputs. We first confirm that, across a broad spectrum of firms, both the FSCORE and GSCORE can discriminate firms with subsequent strong stock performance from firms with subsequent weak performance. Second, we find that the direction of analysts’ outputs is largely consistent with both the FSCORE and GSCORE. Further, financial analysts seem to incorporate improvements in the financial signals when revising their earnings forecast and stock recommendations. Third, after controlling for the financial signals and stock characteristics such as book-to-market, size, momentum, and trading volume, we find that analysts’ recommendations and growth forecasts adversely predict future returns for the general population of stocks. Fourth, inconsistent with the “neglected stocks” story, we find that addin

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