Murat YAŞ, Mohamed ESKANDAR SHAH

498

Shariah Compliance Status and Value of Analysts’ Recommendation Revisions: Evidence from Malaysia

Shariah Compliance Status and Value of Analysts’ Recommendation Revisions: Evidence from Malaysia

This study examines the effect of 1096 analyst recommendation revisions on prices of Shariah-compliant and Shariah non-compliant listed securities in Bursa Malaysia over the period 2005-2016. The study finds that while stocks added-to-buy had positive abnormal returns, the stocks added-to-sell and remove-from-buy had negative abnormal returns in short- and long-term horizons. This finding shows that analysts’ recommendation revisions carry valuable information. Secondly, the study examined the effect of analysts’ recommendation revisions issued contemporaneously with earnings announcements and without earnings announcements on price reactions over various time horizons. The results show that earnings announcements can trigger analysts’ recommendation revisions because the investors react strongly to analysts’ recommendation revisions issued contemporaneously with earnings announcements. We find that performance differences of Shariah-compliant and Shariah non-compliant stocks in response to analysts’ recommendation revisions are often negligible. Overall, this study provides empirical evidence that analysts’ recommendation revisions for Shariah-compliant companies often do not own any additional investment value than those for Shariah non-compliant stocks. 
Keywords:

Analysts, Forecasts, Revisions, Earnings, Islamic finance Shariah-compliant stocks, Malaysia,

PDF

___

  • Al-Khazali, O., Lean, H. H., & Samet, A. (2014). Do Islamic stock indexes outperform conventional stock indexes? A stochastic dominance approach. Pacific-Basin Finance Journal, 28, 29–46. https://doi.org/10.1016/j.pacfin.2013.09.003
  • Alazzani, A., Wan-Hussin, W. N., Jones, M., & Al‐Hadi, A. K. (2019). ESG Reporting and Analysts’ Recommendations, and Royalty Political Connection. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3318282
  • Altınkılıç, O., Balashov, V. S., & Hansen, R. S. (2013). Are Analysts’ Forecasts Informative to the General Public? Management Science, 59(11), 2550–2565. https://doi.org/10.1287/mnsc.2013.1721
  • Altınkılıç, O., & Hansen, R. S. (2009). On the information role of stock recommendation revisions. Journal of Accounting and Economics, 48(1), 17–36. https://doi.org/10.1016/j.jacceco.2009.04.005
  • Barber, B., Lehavy, R., McNichols, M., & Trueman, B. (2001). Can investors profit from the prophets? Security analyst recommendations and stock returns. Journal of Finance, 56(2), 531–563. https://doi.org/10.1111/0022-1082.00336
  • Barnett, M. L., & Salomon, R. M. (2006). Beyond dichotomy: the curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27(11), 1101–1122. https://doi.org/10.1002/smj.557
  • Bennani, L., Le Guenedal, T., Lepetit, F., Ly, L., Mortier, V., Roncalli, T., & Sekine, T. (2018). How ESG Investing Has Impacted the Asset Pricing in the Equity Market. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3316862
  • Bildik, R., & Gülay, G. (2008). The effects of changes in index composition on stock prices and volume: Evidence from the Istanbul stock exchange. International Review of Financial Analysis, 17(1), 178–197. https://doi.org/10.1016/j.irfa.2006.10.002
  • Brav, A., & Lehavy, R. (2003). An Empirical Analysis of Analysts’ Target Prices: Short-term Informativeness and Long-term Dynamics. The Journal of Finance, 58(5), 1933–1967. https://doi.org/10.1111/1540-6261.00593
  • Chang, Y., & Chan, C. (2008). Financial analysts’ stock recommendation revisions and stock price changes. Applied Financial Economics, 18(4), 309–325. https://doi.org/10.1080/09603100600606131
  • Clark, G. L., Feiner, A., & Viehs, M. (2014). From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2508281
  • Cox, D. R., & Peterson, D. R. (1994). Stock Returns following Large One-Day Declines: Evidence on Short-Term Reversals and Longer-Term Performance. The Journal of Finance, 49(1), 255–267. https://doi.org/10.1111/j.1540-6261.1994.tb04428.x
  • CSR Europe, Deloitte, E. (2003). Investing in responsible businesses. Retrieved from https://cgov.pt/images/ficheiros/2018/ISR-2003.pdf
  • Davies, P. L., & Canes, M. (1978). Stock Prices and the Publication of Second-Hand Information. The Journal of Business, 51(1), 43. https://doi.org/10.1086/295983
  • Elber, S. (2008). The Sustainability Yearbook 2008.
  • Elton, E. J., Gruber, M. J., & Grossman, S. (1986). Discrete Expectational Data and Portfolio Performance. The Journal of Finance, 41(3), 699. https://doi.org/10.2307/2328502
  • Farooq, O. (2014). Shariah-compliance and value of analysts’ recommendations: evidence from the MENA region. Journal of Islamic Accounting and Business Research, 5(1), 61–76. https://doi.org/10.1108/JIABR-04-2013-0010
  • Fatema, M., Bhuiyan, F. A., & Bhuiyan, M. A. (2013). Shari ’ a Compliance in Building Identified Islamic Brands. European Journal of Business and Management, 5(11), 10–16.
  • Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917
  • Givoly, D., & Lakonishok, J. (1979). The information content of financial analysts’ forecasts of earnings. Journal of Accounting and Economics, 1(3), 165–185. https://doi.org/10.1016/0165-4101(79)90006-5
  • Gleason, C. A., & Lee, C. M. C. (2003). Analyst Forecast Revisions and Market Price Discovery. The Accounting Review, 78(1), 193–225. https://doi.org/10.2308/accr.2003.78.1.193
  • Grossman, S. (1976). On the Efficiency of Competitive Stock Markets Where Trades Have Diverse Information. The Journal of Finance, 31(2), 573. https://doi.org/10.2307/2326627
  • Hameed Mohamed Ibrahim, S., Fatima, A. H., & Nu Nu Htay, S. (2006). Corporate Governance and Performance: A Comparative Study of Shari’ah Approved and Non‐shari’ah Approved Companies on Bursa Malaysia. Journal of Financial Reporting and Accounting, 4(1), 1–23. https://doi.org/10.1108/19852510680001581
  • Harris, L., & Gurel, E. (1986). Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures. The Journal of Finance, 41(4), 815–829. Retrieved from http://links.jstor.org/sici?sici=0022-1082%28198609%2941%3A4%3C815%3APAVEAW%3E2.0.CO%3B2-E
  • Hillman, A. J., & Keim, G. D. (2001). Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line? Strategic Management Journal, 22(2), 125–139.
  • Hong, H., Lim, T., & Stein, J. C. (2000). Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies. The Journal of Finance, 55(1), 265–295. https://doi.org/10.1111/0022-1082.00206
  • Hooi Lean, H., & Parsva, P. (2012). Performance of Islamic Indices in Malaysia FTSE Market: Empirical Evidence from CAPM. Journal of Applied Sciences, 12(12), 1274–1281. https://doi.org/10.3923/jas.2012.1274.1281
  • Ioannou, I., & Serafeim, G. (2010). The Impact of Corporate Social Responsibility on Investment Recommendations. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1507874
  • Ivkovic, Z., & Jegadeesh, N. (2004). The timing and value of forecast and recommendation revisions. Journal of Financial Economics, 73(3), 433–463. https://doi.org/10.1016/j.jfineco.2004.03.002
  • Jegadeesh, N., Kim, J., Krische, S. D., & Lee, C. M. C. (2004). Analyzing the Analysts: When Do Recommendations Add Value? The Journal of Finance, 59(3), 1083–1124. https://doi.org/10.1111/j.1540-6261.2004.00657.x
  • Kim, Y., & Song, M. (2015). Management Earnings Forecasts and Value of Analyst Forecast Revisions. Management Science, 61(7), 1663–1683. https://doi.org/10.1287/mnsc.2014.1920
  • Loh, R., & Stulz, R. (2009). When are Analyst Recommendation Changes Influential? IMF. Cambridge, MA. https://doi.org/10.3386/w14971
  • Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2015). Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal, 36(1), 123–136. https://doi.org/10.1002/smj.2219
  • Margolis, J. D., & Walsh, J. P. (2003). Misery Loves Companies: Rethinking Social Initiatives by Business. Administrative Science Quarterly, 48(2), 268. https://doi.org/10.2307/3556659
  • McCullough, M. E., & Willoughby, B. L. B. (2009). Religion, self-regulation, and self-control: Associations, explanations, and implications. Psychological Bulletin, 135(1), 69–93. https://doi.org/10.1037/a0014213
  • McWilliams, A., & Siegel, D. (1997). Event Studies in Management Research: Theoretical and Empirical Issues. Academy of Management Journal, 40(3), 626–657. https://doi.org/10.2307/257056
  • Menéndez-Requejo, S. (2005). Market valuation of the analysts’ recommendations: the Spanish stock market. Applied Financial Economics, 15(7), 509–518. https://doi.org/10.1080/09603100500056585
  • Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate Social and Financial Performance: A Meta-Analysis. Organization Studies, 24(3), 403–441. https://doi.org/10.1177/0170840603024003910
  • Sabrun, I. M., Muhamad, R., Yusoff, H., & Darus, F. (2018). Do Shariah-compliant Companies Engage Lesser Earnings Management Behaviour? Asian Journal of Business and Accounting, 11(1), 1–36. https://doi.org/10.22452/ajba.vol11no1.1
  • Scholes, M., & Williams, J. (1977). Estimating betas from nonsynchronous data. Journal of Financial Economics, 5(3), 309–327. https://doi.org/10.1016/0304-405X(77)90041-1
  • Shleifer, A. (1986). Do Demand Curves for Stocks Slope Down? The Journal of Finance, 41(3), 579–590. https://doi.org/10.1111/j.1540-6261.1986.tb04518.x
  • Stickel, S. E. (1995). The Anatomy of the Performance of Buy and Sell Recommendations. Financial Analysts Journal, 51(5), 25–39. https://doi.org/10.2469/faj.v51.n5.1933
  • Stiglitz, J. E., & Grossman, S. J. (1980). On the Impossibility of Informationally Efficient Markets, 70(3), 393–408. https://doi.org/10.7916/D8765R99
  • The State of Households. (2014). Retrieved from http://www.krinstitute.org/Publications-@-The_State_of_Households_II.aspx
  • The value of extra-financial disclosure What investors and analysts said. (2012). Retrieved from https://www.globalreporting.org/resourcelibrary/The-value-of-extra-financial-disclosure.pdf
  • Womack, K. (1996). Do brokerage analysts recommendations have investment value? Journal of Finance, 51(1), 137–167. https://doi.org/10.1111/j.1540-6261.1996.tb05205.x
  • Yazi, E., Morni, F., & Saw, I. S. (2015). The Effects of Shariah Compliance Announcement towards Stock Price Changes in Malaysia. Journal of Economics, Business and Management, 3(11), 1019–1023. https://doi.org/10.7763/JOEBM.2015.V3.327
  • Yezegel, A. (2015). Why do analysts revise their stock recommendations after earnings announcements? Journal of Accounting and Economics, 59(2–3), 163–181. https://doi.org/10.1016/j.jacceco.2015.01.001
İslam Ekonomisi Dergisi-Cover
  • Başlangıç: 2021
  • Yayıncı: Ankara Sosyal Bilimler Üniversitesi
Arşiv
Sayıdaki Diğer Makaleler

An Empirical Analysis of Inflation Targeting in Dual Banking System: Case Study of Turkey.

Tawfik AZRAK, Fatma SAYAR

Davranışsal Finansta Bilişsel Yansıma ve Karar Vermede Z Kuşağının Eğilimleri

Nevra YILDIRIMER, Fadime ALP, Sevgi BAL, Kamola BAYRAM

Shariah Compliance Status and Value of Analysts’ Recommendation Revisions: Evidence from Malaysia

Murat YAŞ, Mohamed ESKANDAR SHAH

Analysis of Europe's First Fully-Fledged Islamic Digital Bank in the Arena of New Age Banking

Yusuf DİNÇ, Ruslan NAGAYEV, S M Rashed JAHANGİR

Rational Behavior in Islam (Islamic Rationalism): A Critical Evaluation of the Extreme Rationality Assumption

Salma ABDELLATEF