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How Do Experienced Analysts Improve Price Efficiency?

47 Pages Posted: 10 Jun 2014 Last revised: 1 Jul 2017

Ali C. Akyol

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Yiming Qian

University of Iowa - Department of Finance

Frank Yu

China Europe International Business School

Date Written: June 30, 2017

Abstract

We document that the accrual anomaly is smaller for firms followed by experienced analysts, suggesting a positive association between analyst experience and stock price efficiency. We examine two channels through which analyst experience could affect price efficiency: research and monitoring. We find analysts and investors respond more positively to the accrual component of earnings for firms followed by more experienced analysts, consistent with the monitoring channel. We next test whether analyst experience is positively associated with higher quality accruals, consistent with the monitoring story. Using both propensity score matching and the exogenous closure of brokerages to control for potential endogeneity, we find that accrual quality is higher in firms followed by experienced analysts. Our results suggest that improved monitoring of financial reporting by experienced analysts can mitigate accrual mispricing.

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

JEL Classification: G14, G24, J24

Suggested Citation

Akyol, Ali C. and Hribar, Paul and Qian, Yiming and Yu, Frank, How Do Experienced Analysts Improve Price Efficiency? (June 30, 2017). Available at SSRN: https://ssrn.com/abstract=2448041 or http://dx.doi.org/10.2139/ssrn.2448041

Ali C. Akyol

University of Melbourne - Department of Finance ( 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

Paul Hribar

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Yiming Qian (Contact Author)

University of Iowa - Department of Finance ( email )

S382 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0934 (Phone)
319-335-3690 (Fax)

Fang Yu

China Europe International Business School ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

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