The Impact of Analyst, CEO, and Firm Reputations on Investors in the UK and Japanese Stock Markets

Abstract

We examine the importance of multiple agents’ reputations on the market's reaction to analysts’ stock recommendation revisions (analyst revisions), individually and interactively, in the UK and Japanese stock markets. We find some notable variations in reputation effects between the two markets. In the UK, analyst reputation amplifies the market's reaction to analyst revisions, while in Japan, analyst reputation has no significant impact. Firm reputation diminishes (amplifies) the market's reaction to analyst revisions in the UK (Japan). Only CEO reputation generates similar effects in the UK and Japan, dampening the market's reaction to analyst revisions. We also find that reputations interact in different ways in the two markets. Specifically, firm reputation and CEO reputation tend to moderate the positive effect of analyst reputation in the UK; however, in Japan, CEO reputation tends to moderate the positive effect of firm reputation, but there is no significant interaction effect between analyst reputation and CEO/firm reputation. Our findings are explained using insights both from formal economic models and from various cultural and institutional characteristics.