Analyst Following Along the Supply Chain and Forecast Accuracy

47 Pages Posted: 6 Mar 2011

See all articles by Yuyan Guan

Yuyan Guan

Nanyang Business School, Nanyang Technological University

M.H. Franco Wong

University of Toronto - Rotman School of Management

Yue Zhang

Lingnan University

Date Written: March 2, 2011

Abstract

This study investigates whether analysts strategically construct their portfolios along the supply chain. We document four major findings. First, the likelihood of an analyst following a firm’s major customer increases with the strength of the economic tie along the supply chain, as measured by the percent of the firm’s sales to its customer. Second, analysts who follow the firms’ major customers incorporate the customers’ earnings news into their forecast revisions for the (supplier) firms, but other analysts do not. Third, by following the major customer firms, analysts can improve the accuracy of their earnings forecasts for the supplier firms. Fourth, the improvement in forecast accuracy attributed to following a firm’s customers is statistically as important as the effect of following the firm’s industry peers. We obtain these results while controlling for the analysts’ endogenous choice of covering a firm’s major customers.

Keywords: Supply chain, Information transfers, Analyst following, Forecast revisions, Forecast accuracy

JEL Classification: D80, G14, M41

Suggested Citation

Guan, Yuyan and Wong, M.H. Franco and Zhang, Yue, Analyst Following Along the Supply Chain and Forecast Accuracy (March 2, 2011). Available at SSRN: https://ssrn.com/abstract=1775748 or http://dx.doi.org/10.2139/ssrn.1775748

Yuyan Guan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

M.H. Franco Wong (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-0729 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Wong.aspx

Yue Zhang

Lingnan University ( email )

8 Castle Peak Road, Fu Tei
00000
Hong Kong
852-26168164 (Phone)

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