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    The reputational effects of analysts' stock recommendations and credit ratings: Evidence from operational risk announcements in the financial industry

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    Ashby_S_IRFA_The Reputational ...
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    Publication type
    Journal article with impact factor
    Author
    Barakat, Ahmed
    Ashby, Simon
    Fenn, Paul
    Publication Year
    2018
    Journal
    International Review of Financial Analysis
    Publication Volume
    55
    Publication Issue
    1
    Publication Begin page
    1
    Publication End page
    22
    
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    Abstract
    This paper investigates whether more favorable stock recommendations and higher credit ratings serve as a reputational asset or reputational liability around reputation-damaging events. Analyzing the reputational effects of operational risk announcements incurred by financial institutions, we find that firms with a “Buy” stock recommendation or “Speculative Grade” credit rating are more likely to incur an equity-based reputational damage. In addition, firms with lower credit ratings incur a much more severe debt-based reputational damage. Moreover, credit ratings are more instrumental in mitigating the debt-based reputational damage caused by fraud incidents or incurred in non-banking activities. Furthermore, the misconduct of senior management could demolish the reputation of firms with less heterogeneous stock recommendations. Finally, credit ratings serve as an equity-based reputational asset in the short term but turn into an equity-based reputational liability in the long term. Overall, our analysis reveals that stock recommendations represent a reputational burden and credit ratings act as a reputational shield; however, the persistence and magnitude of such reputational effects are moderated by time and event characteristics.
    Keyword
    Reputational Risk, Operational Risk, Financial Analysts, Stock Recommendations, Credit Ratings, Financial Institutions
    Knowledge Domain/Industry
    Accounting & Finance
    Special Industries : Financial Services Management
    DOI
    10.1016/j.irfa.2017.10.011
    URI
    http://hdl.handle.net/20.500.12127/6237
    ae974a485f413a2113503eed53cd6c53
    10.1016/j.irfa.2017.10.011
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