IMPACTS OF ANALYSTS’ RECOMMENDATIONS ON STOCKS OF DUAL-LISTED FIRMS

Abstract

This study aims to shed light on a new research direction by analysing how dual-listing activities can affect firm’s stock price reactions towards analysts’ recommendations. We examine the Chinese stocks dual-listed in the Chinese and the Hong Kong markets over a period from 2006 to 2011. Our findings support the Integration Hypothesis, which states that recommendations released for overseas stocks are perceived as valuable for their equivalent stocks dual-listed on domestic markets. However, we find that only negative signals generate stock price reactions due to pessimistic outlooks about dual-listed firms’ post-IPO performance. We also find that for overseas recommendations, market reacts to both negative levels and downgrades while for domestic recommendations, it only reacts to recommendation downgrades. Comparing dual-listed and domestic-listed firms, we observe that dual-listed firms differ from domestic-listed firms in terms of stock price reactions towards analysts’ recommendations. However, the difference is not consistent for all types of recommendations. Instead, while recommendation downgrades lead to significant stock price reactions among stocks of dual-listed firms, recommendation upgrades are significant signals for stocks of domestic-listed firms.