The Performance of Analysts with a CFA Designation: The Role of Human-Capital and Signaling Theories
Posted: 3 Jun 2011
Date Written: March 1, 2009
This study compares the performance of sell-side equity analysts with and without a Chartered Financial Analyst (CFA) designation. Using a large sample of forecasts, our tests indicate that CFA charterholders issue forecasts that are timelier than those of non-charterholders. The results for accuracy are mixed. We establish that while charterholders perform at statistically significant higher levels than non-charterholders in some tests, we find evidence that charterholders improve along the dimension of timeliness after they receive their CFA charter. This result provides support for a human-capital explanation in which charterholders improve their productivity during the CFA program. Finally, we show that the market reaction for smaller firms is stronger for charterholders than non-charterholders after controlling for timeliness, boldness, accuracy, and optimism. This result provides evidence consistent with "credentialism", a variant of signaling theory in which a professional's education level provides a signal about the professional's quality to his or her clients.
Keywords: analyst forecasts, analyst performance, human capital, signaling, credentialism
JEL Classification: A11, G14, G28, G29, J24, J32, M41
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