How Do Experienced Analysts Improve Price Efficiency?

50 Pages Posted: 10 Jun 2014 Last revised: 29 Mar 2021

See all articles by Ali C. Akyol

Ali C. Akyol

University of Ottawa; University of Melbourne; Financial Research Network (FIRN)

Yiming Qian

University of Connecticut

Frank Yu

China Europe International Business School

Date Written: March 29, 2021

Abstract

We document that the accrual anomaly is substantially mitigated for firms followed by more experienced analysts. We then examine research and monitoring as possible channels through which experience mitigates mispricing. For firms followed by more experienced analysts, we find that forecast revisions and stock prices respond more positively to the accrual component of earnings. We further find that accrual quality is higher in firms followed by more experienced analysts, which holds after using both propensity score matching and exogenous events of brokerage closures and mergers to control for endogeneity. Finally, our results indicate that only years of experience directly covering the firm matter while experience covering other firms is not associated with greater price efficiency. Collectively, our results are consistent with monitoring being the primary mechanism by which experienced analysts reduce accrual mispricing.

Keywords: Financial Analysts, Accrual Anomaly, Experience, Accrual Quality

JEL Classification: G14, G24, J24

Suggested Citation

Akyol, Ali C. and Qian, Yiming and Yu, Frank, How Do Experienced Analysts Improve Price Efficiency? (March 29, 2021). Available at SSRN: https://ssrn.com/abstract=2448041 or http://dx.doi.org/10.2139/ssrn.2448041

Ali C. Akyol

University of Ottawa ( email )

55 Laurier Ave E
Ottawa, Ontario K1N 6N5
Canada

HOME PAGE: http://www.aliakyol.com

University of Melbourne ( email )

198 Berkeley Street
Faculty of Economics and Commerce
Carlton VIC 3010, Victoria 3010
Australia
+61 (3) 8344-5318 (Phone)
+61 (3) 8344-6914 (Fax)

HOME PAGE: http://www.aliakyol.com

Financial Research Network (FIRN)

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

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

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

Frank Yu

China Europe International Business School ( email )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

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