Shariah compliance status and value of analysts’ recommendation revisions: Evidence from Malaysia

This study examines the effect of 1096 analyst recommendation revisions on prices of Shari'ah-compliant and Shariah non-compliant listed securities in Bursa Malaysia over the period 2005-2016. The study finds that while stocks added-to-buy had positive abnormal returns, the stocks added-to-sell and remove-from-buy had negative abnormal returns in short- and long-term horizons. This finding shows that analysts’ recommendation revisions carry valuable information. Secondly, the study examined the effect of analysts’ recommendation revisions issued contemporaneously with earnings announcements and without earnings announcements on price reactions over various time horizons. The results show that earnings announcements can trigger analysts’ recommendation revisions because the investors react strongly to analysts’ recommendation revisions issued contemporaneously with earnings announcements. We find that performance differences of Shari'ah-compliant and Shariah non-compliant stocks in response to analysts’ recommendation revisions are often negligible. Overall, this study provides empirical evidence that analysts’ recommendation revisions for Shari'ah-compliant companies often do not own any additional investment value than those for Shariah non-compliant stocks.