What do analysts do? Discussion of “Information interpretation or information discovery: which role of analysts do investors value more?”

Three decades of accounting and finance research has extensively studied the outputs from financial analysts. However, there is sparse systematic evidence on what analysts do to generate their outputs in the form of forecasts, recommendations, and research reports. Livnat and Zhang (Rev Account Stud, 2012) provide interesting new evidence regarding the relative amount of value added that analysts produce by examining investors’ reaction to analysts’ forecast revisions issued promptly after firms’ public disclosures compared with those issued at other times. Their analysis shows that prompt revisions are associated with larger returns, which the authors interpret as evidence that analysts’ ability to interpret public disclosures is more valuable to investors. Three issues bear consideration in the interpretation of these findings.