Impact of analyst report on the behavior of retail investors: a study during COVID-19 in India

Abstract

Purpose One of the adverse effects of COVID-19 is on poor economic and financial performance. Such economic underperformance, less demand from the consumer side and supply chain disruption is leading to stock market volatility. In such a backdrop, this paper aims to find the impact of COVID-19 on the Indian stock market by analyzing the analyst’s report. Design/methodology/approach The sample includes a cross-sectional data set on selected Indian firms that are indexed in BSE 100. The authors calculate the score of disclosure tone by using a textual analysis tool based on the analyst report of selected BSE 100 firms' approach in tackling COVID-19’s impact. The relationship between the tone of the analyst report and stock market performance is examined. This empirical model also survives robustness analysis to establish the consistency of the findings. This study uses both frequentist statistics and Bayesian statistics approach. Findings The empirical result shows that tone has negative and significant influence on stock market performance. This study indicates that either analysts are not providing value-relevant and incremental information, which can reduce the stock market volatility during this pandemic situation or investors are not able to recognize the optimism of the information. Practical implications This study provides an interesting insight regarding retail investors' stock purchasing behavior during the crisis period. Hence, this study also lays out crucial managerial implications that can be followed by preparers while preparing corporate disclosure. Originality/value In the concern on pandemic and its impact on the stock market, this study sheds light on investors' preferences during the crisis period. This study uniquely focuses on analyst reports and investors' preference which has not been studied widely. To the best of the authors’ knowledge, this is the first study in the Indian context, which aims to understand retail investors’ investment preferences during a pandemic.