Financial Analysts and Collective Reputation: Theory and Evidence

43 Pages Posted: 28 Nov 2011

See all articles by Stefano Bonini

Stefano Bonini

Stevens Institute of Technology - School of Business

Filippo Pavesi

Università Carlo Cattaneo (LIUC) - Institute of Economics; Stevens Institute of Technology - School of Business

Massimo Scotti

University of Technology Sydney

Date Written: January 28, 2011

Abstract

This paper studies the impact of collective reputation on the reporting strategy of experts that face conflicts of interest. The framework we propose applies to different settings involving decision makers that rely on experts for making informed decisions, in particular we consider sell-side financial analysts. We find that collective reputation has a non-monotonic effect on the degree of information revelation. In general, truthful revelation is more likely to occur when there is more uncertainty on the average ability of analysts as a group. In particular, above a certain threshold, an increase in collective reputation always makes truthful revelation more difficult to achieve. We test this theory by creating an index on the market's perception of the general reliability of analysts' recommendations. The empirical analysis provides evidence that collective reputation plays a role in determining the behavior of analysts independently of their individual reputation.

Keywords: reputation, analaysts, accuracy

JEL Classification: G24, L14

Suggested Citation

Bonini, Stefano and Pavesi, Filippo and Scotti, Massimo, Financial Analysts and Collective Reputation: Theory and Evidence (January 28, 2011). Available at SSRN: https://ssrn.com/abstract=1965451 or http://dx.doi.org/10.2139/ssrn.1965451

Stefano Bonini (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Filippo Pavesi

Università Carlo Cattaneo (LIUC) - Institute of Economics ( email )

21053 Castellanza (VA)
Italy

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Massimo Scotti

University of Technology Sydney ( email )

15 Broadway, Ultimo
Sydney
Australia

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