Are All Analysts Created Equal? Industry Expertise and Monitoring Effectiveness of Financial Analysts

62 Pages Posted: 2 Nov 2014 Last revised: 1 Mar 2017

See all articles by Daniel Bradley

Daniel Bradley

University of South Florida

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

Fei Xie

University of Delaware - Lerner College of Business and Economics; European Corporate Governance Institute (ECGI)

Date Written: January 17, 2017

Abstract

We examine whether analysts’ prior industry experience influences their ability to serve as effective external firm monitors. Our analyses of firms’ financial disclosure quality, executive compensation and CEO turnover decisions portray a consistent picture that related pre-analyst industry experience is of critical importance for analysts to play an effective monitoring role. Coverage by analysts with such experience is associated with reduced earnings management, lower probability of committing financial misrepresentation, less CEO excess compensation, and higher performance sensitivity of CEO turnover. We also provide evidence on several plausible mechanisms through which industry expert analysts exert monitoring efforts and limit managerial opportunism.

Keywords: analysts; monitoring; governance

JEL Classification: G21

Suggested Citation

Bradley, Daniel and Gokkaya, Sinan and Liu, Xi and Xie, Fei, Are All Analysts Created Equal? Industry Expertise and Monitoring Effectiveness of Financial Analysts (January 17, 2017). Journal of Accounting and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2517502 or http://dx.doi.org/10.2139/ssrn.2517502

Daniel Bradley (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Sinan Gokkaya

Department of Finance, Ohio University ( email )

207 Muck College of Business
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

Fei Xie

University of Delaware - Lerner College of Business and Economics ( email )

42 Amstel Ave
Newark, DE 19716
United States
(302) 8313811 (Phone)

HOME PAGE: http://sites.google.com/site/feisresearch/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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