Does Initial Placement Matter for Equity Analysts' Forecast Accuracy

Abstract:     
Equity analysts who are more accurate in forecasting earnings tend to work at higher quality brokerage houses. This relation is endogenous, making it difficult to infer causality between brokerage house quality and forecast accuracy. We identify the exogenous portion of equity analysts' initial placements with instruments including stock market conditions, market-wide investment banking activities, and market-wide net hiring or retiring of analysts. We find a significant effect of the exogenous portion of initial placement on analysts' career performance. Analysts with initial placements at top brokerage houses issue more accurate forecasts than their peers with similar ability, but worse initial placements. We find this relation exists because analysts at top brokerage houses have better access to information. Consistent with the access-to-information story, this relation becomes much weaker and almost disappears after the enactment of Regulation Fair Disclosure.

Number of Pages in PDF File: 41

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