Relevance of Financial and Non-Financial Measures to Financial Analysts: Experimental Evidence

This research explores the role of financial and non-financial measures on analysts’ recommendations. Specifically, we examine for different combinations of favorable and unfavorable financial and non-financial measures (a) how analysts ’ recommendations ratings to invest in a firm are influenced by these measures- an outcome variable, and (b) two process variables, the weights put on these measures and the effect of these measures on analysts ’ time horizon when making their recommendations. The last issue examined is how the two measures are weighted in conjunction with the time horizon in making the recommendations when the favorableness of the measures vary or are consistent. The participants were 119 financial analysts. The results indicate financial and non-financial measures have a complementary effect on analysts ’ ratings to invest in firms. Also, favorableness of the measures affects the weights assigned to them and the time horizon of the analysts ’ recommendation. Further, when non-financial measures are favorable, the interaction of the weights analysts put on these measures and recommendations ’ time horizon significantly influences their ratings