Security Analysts' Career Concerns and Herding of Earnings Forecasts

Posted: 11 Oct 2000

See all articles by Jeffrey D. Kubik

Jeffrey D. Kubik

Syracuse University - Department of Economics

Amit Solomon

Salomon Smith Barney

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

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Abstract

Several theories of reputation and herd behavior (e.g., Scharfstein and Stein (1990) and Zweibel (1995)) suggest that herding among agents should vary with career concerns. Our goal is to document whether such a link exists in the labor market for security analysts. We find that inexperienced analysts are more likely to be terminated for inaccurate earnings forecasts than are their more experienced counterparts. Controlling for forecast accuracy, they are also more likely to be terminated for bold forecasts that deviate from the consensus. Consistent with these implicit incentives, we find that inexperienced analysts deviate less from consensus forecasts. Additionally, inexperienced analysts are less likely to issue timely forecasts, and they revise their forecasts more frequently. These findings are broadly consistent with existing career concern motivated herding theories.

JEL Classification: J29

Suggested Citation

Kubik, Jeffrey D. and Solomon, Amit and Hong, Harrison G., Security Analysts' Career Concerns and Herding of Earnings Forecasts. RAND Journal of Economics, Vol. 31, Issue 1. Available at SSRN: https://ssrn.com/abstract=203388

Jeffrey D. Kubik

Syracuse University - Department of Economics ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-9063 (Phone)
315-443-1081 (Fax)

Amit Solomon

Salomon Smith Barney ( email )

7 World Trade Center, 32nd floor
New York, NY NY 10048
United States
+1 (212) 783 5601 (Phone)
+1 (212) 783 4266 (Fax)

Harrison G. Hong (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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