Star-Analysts’ Forecast Accuracy and the Role of Corporate Governance

Abstract

This paper examines whether star-analysts have better forecasting abilities than non-star-analysts. Our results reveal that star-analysts’ earnings forecasts outperform their peers’ forecasts. Because the level of corporate governance plays an important role for the general level of forecast accuracy, we furthermore investigate whether star-analysts benefit from higher levels of governance. Our findings suggest that forecast accuracy of star-analysts increases with the level of both country- and company-specific corporate governance. Investors in capital markets do not seem to be aware of this fact because they do not react differently to forecasts issued by star-analysts compared to those of non-star-analysts.

Keywords: investor protection, institutional investors, corporate governance, forecast accuracy, analyst reports, star-analyst, StarMine

JEL Classification: G14, G15, G18, G24, G32