Competition or Spillover? Star Analyst Co-coverage and Firms’ Information Environment

40 Pages Posted: 22 Apr 2014 Last revised: 17 Feb 2023

See all articles by Gil Aharoni

Gil Aharoni

University of Melbourne; Financial Research Network (FIRN)

Joshua Shemesh

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Fernando Zapatero

Boston University - Questrom School of Business

Date Written: December 1, 2022

Abstract

Existing literature commonly uses analyst coverage as a proxy for firms’ information environment, yet remains agnostic as to the mechanism driving this relationship. We find that star analysts concentrate their efforts and generate substantially more accurate earnings forecasts in multi-star stocks, in which they cross paths with other stars. Using the Institutional Investor (I/I) rankings, we show that an exogenous drop in competition—involving no change in the firm’s information environment—is followed by an increase in forecast error. Our evidence suggests that star analysts compete against each other, rather than learn from one another.

Keywords: star analysts, tournament incentives, forecast error, earnings predictability, firms’ information environment

JEL Classification: G20; G23; G24

Suggested Citation

Aharoni, Gil and Shemesh, Joshua and Zapatero, Fernando, Competition or Spillover? Star Analyst Co-coverage and Firms’ Information Environment (December 1, 2022). Available at SSRN: https://ssrn.com/abstract=2427567 or http://dx.doi.org/10.2139/ssrn.2427567

Gil Aharoni

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Joshua Shemesh (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Fernando Zapatero

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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