How Do Experienced Analysts Improve Price Efficiency?

49 Pages Posted: 10 Jun 2014 Last revised: 8 May 2018

Ali C. Akyol

The 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: April 30, 2018

Abstract

We document that the accrual anomaly is substantially mitigated for firms followed by more experienced analysts, suggesting that analyst experience improves stock price efficiency. We examine two channels through which analyst experience could affect price efficiency: research and monitoring. Our results are consistent with the monitoring role being the primary mechanism through which experience affects price efficiency. For firms followed by more experienced analysts, we find that analysts and investors respond more positively to the accrual component of earnings, and that accrual quality is higher. The latter result holds after using both propensity score matching and exogenous events of brokerage closures and mergers to control for endogeneity. Finally, our results consistently indicate that only years of experience directly covering the firm matter; experience covering other firms does is not associated with improved price efficiency.

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? (April 30, 2018). Available at SSRN: https://ssrn.com/abstract=2448041 or http://dx.doi.org/10.2139/ssrn.2448041

Ali C. Akyol

The 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 )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

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