Information content of analyst recommendations: Evidence from the Danish biotechnology sector

Abstract

The purpose of this paper is to document the performance of analyst recommendations for biotechnology firms listed at the Copenhagen Stock Exchange during the period between 2001 and 2010. Our results show that analysts are able to reveal value relevant information via their recommendations. We report that buy recommendations are followed by significantly positive returns and sell recommendations are followed by significantly negative returns. However, we also show that performance of analyst recommendations is not uniform across all firms. It depends on the extent of information asymmetries present within firms. We show that analyst recommendations contain no value for firms with the least level of transparency (lowest intellectual capital disclosure, lowest analyst coverage, and lowest frequency of recommendations). However, as information environment improves, value of analyst recommendations also goes up. We recommend biotechnology firms to improve on their disclosure levels.