CEO Overconfidence, Accounting Conservatism, and Their Combined Effects on Analysts' Recommendations

This study explores the impact of CEO overconfidence, accounting conservatism, and their joint effect on analyst stock recommendations in response to informational events. Empirical tests show that CEO overconfidence is negatively associated with analysts' recommendations following the good news, while it is positively associated with analysts' recommendations following the bad news. Next, both conditional conservatism and unconditional conservatism are negatively associated with analysts' recommendations following information events, regardless of whether the event is good or bad. Lastly, the interaction between CEO overconfidence and accounting conservatism is generally positively associated with analysts' recommendations, regardless of whether the event is good or bad. In addition, the joint effect of CEO overconfidence and conservatism differs between the bull and bear markets but does not differentiate between firms with high and low R&D intensity or across different life stages of firms. In conclusion, this study provides evidence that analysts incorporate information on CEO overconfidence, accounting conservatism, and their combined effects in their decision-making process of issuing stock recommendations.