Revisionist Revisions at IBES!

Like many academics in the fields of finance and accounting, I regularly use the IBES (Institutional Brokers Estimate System) database of analyst forecasts (compiled by Thomson) in my research. So this next piece troubled me. It seems like restatements are not just limited to companies - IBES makes them too!

Ljungqvist, Malloy, and Marston have done a very interesting study of IBES forecasts titled Rewriting History. They find that the some "bad" analysts reports on IBES are subsequently removed from the database in later versions:

Comparing two snapshots of the entire I/B/E/S analyst stock recommendations database, taken in 2002 and 2004 but each covering the same time period 1993-2002, we identify nearly twenty thousand changes of an unusual nature: the selective removal of analyst names from historic recommendations ("“anonymizations"”). This practice turns out to be pervasive and non-random: Bolder recommendations are more likely to be anonymized, as are recommendations from more senior analysts, Institutional Investor "“all-stars,"” and those who remain in the industry beyond 2002. Abnormal stock returns following subsequently anonymized buy recommendations are significantly lower (by up to 11.0% p.a.) than those following buy recommendations that remain untouched, suggesting that particularly embarrassing recommendations are most likely to be anonymized. Analysts whose track records appear brighter due to anonymizations experience more favorable career outcomes over the 2003-2005 period than their track records and abilities would otherwise warrant.

It's reminiscent of the old Soviet style of rewriting history to suit current needs. In retrospect (no pun intended), it doesn't surprise me that this could happen. But it does make Thomson look pretty bad. It also might add some biases to the data that might make researchers less likely to trust results derived from this data.

I know it's got me thinking about how this affects my current IBES-based project.

HT: The New Economist

Update: I just received an email from a representative of Thomson (the company that puts IBES together). In the interest of fairness, I thought I'd post it here:

“The conclusions of the report are wrong. The integrity of Thomson Financial’s I/B/E/S database is without question and all analyst ID’s and their recommendations are maintained in the master I/B/E/S database. This particular report was based on an incomplete data set. The analyst data in question was however, available in other subfiles, which were accessible to the researchers. While we are disappointed the report was issued as is, we have reached out to the authors to ensure they both understand the data and alternate mechanisms to access the data they were originally looking for.”

I'm agnostic about the whole business, but time will tell which story holds more water.

But I must say, I'm impressed that the Thomson p.r. department understands enough about reputation and the internet to monitor the blogosphere.