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Before an Analyst Becomes an Analyst: Does Industry Experience Matter?

48 Pages Posted: 8 Jan 2014 Last revised: 1 Oct 2015

Daniel Bradley

University of South Florida

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

Date Written: August 11, 2015

Abstract

Using hand-collected biographical information on financial analysts from 1983 to 2011, we find that analysts making forecasts on firms in industries related to their pre-analyst experience have better forecast accuracy, evoke stronger market reactions to earning revisions, and are more likely to be named Institutional Investor all-stars. Exogenous losses of analysts with related industry experience have real financial market implications — changes in firms’ information asymmetry and price reactions are significantly larger compared to other analysts. Overall, industry expertise acquired from pre-analyst work experience is valuable to analysts consistent with the emphasis placed on their industry knowledge by institutional investors.

Keywords: Analyst forecasts, industry knowledge, all-star analysts

JEL Classification: G20, G23

Suggested Citation

Bradley, Daniel and Gokkaya, Sinan and Liu, Xi, Before an Analyst Becomes an Analyst: Does Industry Experience Matter? (August 11, 2015). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2375262 or http://dx.doi.org/10.2139/ssrn.2375262

Daniel Bradley (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Sinan Gokkaya

Department of Finance, Ohio University ( email )

334 Copeland Hall
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

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