Analyst Reputation, Communication and Information Acquisition

58 Pages Posted: 17 Nov 2014  

Xiaojing Meng

New York University (NYU) - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: November 10, 2014


Earlier studies have shown that reputational concerns tend to reduce agents' opportunistic behavior. However, a recent study by Morris (2001) argued that analysts' (experts') reputational concerns may discourage truthful communication when they try to avoid being perceived as being misaligned with investors. In this paper, I examine the effect of reputational concerns on communication in a setting where analysts can choose their precision endogenously. Because both misaligned and aligned analysts want investors to trust their reports in the future, both will aim to build a reputation for being aligned. In equilibrium, aligned analysts will acquire more information than misaligned analysts. As a result, investors may favorably update their beliefs about the analysts' type when the report is proven to be accurate. Therefore both types of analysts will have reputational incentives to communicate truthfully. The paper also derives conditions under which the analysts' reputational concerns have a non-monotonic impact on aligned analysts' equilibrium precision choices and investors' welfare.

Keywords: cheap-talk, reputation, information acquisition

JEL Classification: D83, M41

Suggested Citation

Meng, Xiaojing, Analyst Reputation, Communication and Information Acquisition (November 10, 2014). Available at SSRN: or

Xiaojing Meng (Contact Author)

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States

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