Financial Analysts’ Recommendations, Macroeconomic Conditions, and Stock Price Crash Risk

We examine the relation between analysts’ consensus recommendation changes and future stock price crash risk in recessionary economic conditions and normal conditions. We find that analysts’ downgrades are followed by a higher stock price crash risk in normal macroeconomic conditions, but a lower stock price crash risk in recessionary situations. These results are stronger among firms with higher information asymmetry problems and with analysts who are involved with lead underwriters or working for sanctioned banks. Our results are not driven by analysts’ experience as even analysts with higher experience tend to issue optimistic recommendation change during bad economic times. Overall, our findings highlight the importance of incorporating macroeconomic conditions in the understanding of the information content of analysts’ recommendation for future stock price movements