The market reaction to analyst stock recommendation and earnings forecast consistency: International evidence

Abstract Using a large international sample from 81 counties, this paper examines the incremental effects of recommendation–forecast consistency on the market reactions to revisions in stock recommendations and earnings forecasts. We define analysts’ stock recommendations and earnings forecasts as consistent if both are above or below their respective consensus, and inconsistent otherwise. We hypothesize and find that recommendation-forecast consistency adds incremental positive effects to the market reaction to analysts’ stock recommendation revisions and their earnings forecast revisions for our international sample. Moreover, the incremental positive effects exist in both strong and weak investor protection countries, with the effects being greater in strong-investor protection countries than in weak-investor protection countries. Finally, International Financial Reporting Standards (IFRS) adoption significantly enhances these incremental positive effects.