The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry
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 t...
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| Format: | Article |
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Elsevier
2018
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| Online Access: | https://eprints.nottingham.ac.uk/48338/ |
| _version_ | 1848797742278639616 |
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| author | Barakat, Ahmed Ashby, Simon Fenn, Paul |
| author_facet | Barakat, Ahmed Ashby, Simon Fenn, Paul |
| author_sort | Barakat, Ahmed |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | 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. |
| first_indexed | 2025-11-14T20:08:42Z |
| format | Article |
| id | nottingham-48338 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:08:42Z |
| publishDate | 2018 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-483382020-05-04T19:28:48Z https://eprints.nottingham.ac.uk/48338/ The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry Barakat, Ahmed Ashby, Simon Fenn, Paul 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. Elsevier 2018-01-31 Article PeerReviewed Barakat, Ahmed, Ashby, Simon and Fenn, Paul (2018) The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry. International Review of Financial Analysis, 55 . pp. 1-22. ISSN 1057-5219 Reputational risk; Operational risk; Financial analysts; Stock recommendations; Credit ratings; Financial institutions https://doi.org/10.1016/j.irfa.2017.10.011 doi:10.1016/j.irfa.2017.10.011 doi:10.1016/j.irfa.2017.10.011 |
| spellingShingle | Reputational risk; Operational risk; Financial analysts; Stock recommendations; Credit ratings; Financial institutions Barakat, Ahmed Ashby, Simon Fenn, Paul The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| title | The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| title_full | The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| title_fullStr | The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| title_full_unstemmed | The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| title_short | The reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| title_sort | reputational effects of analysts' stock recommendations and credit ratings: evidence from operational risk announcements in the financial industry |
| topic | Reputational risk; Operational risk; Financial analysts; Stock recommendations; Credit ratings; Financial institutions |
| url | https://eprints.nottingham.ac.uk/48338/ https://eprints.nottingham.ac.uk/48338/ https://eprints.nottingham.ac.uk/48338/ |