Industry Expertise and the Informational Advantages of Managers and Analysts

52 Pages Posted: 22 Sep 2015 Last revised: 2 May 2018

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Dan Amiram

Columbia Business School - Accounting, Business Law & Taxation; Tel Aviv University - Coller School of Management

Alon Kalay

Columbia Business School - Accounting, Business Law & Taxation

Gil Sadka

University of Texas at Dallas

Date Written: April 30, 2018

Abstract

This paper examines whether analysts have an industry-level information advantage over managers when forecasting a firm’s earnings. We argue that such an advantage is more likely to exist for firms that operate in industries that are characterized by more uncertain operating environments due to industry-level shocks. 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 (e.g., range versus point estimates) forecasts, and that these results are more pronounced when analyst following and institutional ownership are higher. These findings suggest that analysts have an informational advantage over managers with respect to industry-level information for industries with certain characteristics.

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 (April 30, 2018). 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

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

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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