Does Competition between Stars Increase Output? Evidence from Financial Analyst Forecasts

Abstract

Top sportsmen often refer to competition against other top sportsmen as a motivation to exert more effort. We examine whether a similar pattern exists among another group of top professionals – star analysts. Our evidence suggests 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. We further show that the higher accuracy in multi-star stocks is not driven by other changes in the information environment of the firms. Our results suggest that competition among stars has substantial effects on the largest firms in financial markets.

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

JEL Classification: G20; G23; G24