Industry Expertise and the Informational Advantages of Managers and Analysts

44 Pages Posted: 22 Sep 2015 Last revised: 1 Sep 2016

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Dan Amiram

Columbia Business School - Accounting, Business Law & Taxation

Alon Kalay

Columbia Business School - Accounting, Business Law & Taxation

Gil Sadka

University of Texas at Dallas

Date Written: August 30, 2016

Abstract

This paper examines whether analysts, who are viewed as industry experts, have industry-level information advantage over managers. We argue that such an advantage is more likely to exist for firms that operate in industries that are characterized by more difficult and uncertain operating environments, especially due to higher sensitivity to external shocks. Using a proprietary database of forward looking, time varying, industry-level characteristics, we find that for firms in such industries analysts provide more accurate forecasts than managers. We further find that managers of firms in such industries provide fewer and less precise forecasts, and these results are more pronounced when analyst following and institutional ownership is high. Finally, the magnitude of analyst forecast revisions following management forecasts is smaller in such industries.

Keywords: Voluntary disclosure, management earnings forecasts, industry expertise, analysts, information asymmetry

Suggested Citation

Ali, Ashiq and Amiram, Dan and Kalay, Alon and Sadka, Gil, Industry Expertise and the Informational Advantages of Managers and Analysts (August 30, 2016). Columbia Business School Research Paper No. 15-86. Available at SSRN: https://ssrn.com/abstract=2663611 or http://dx.doi.org/10.2139/ssrn.2663611

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Dan Amiram (Contact Author)

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Alon Kalay

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Gil Sadka

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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