Analyst Career Concerns, Effort Allocation, and Firms’ Information Environment

Review of Financial Studies, Forthcoming

65 Pages Posted: 6 Apr 2017 Last revised: 24 Aug 2018

See all articles by Jarrad Harford

Jarrad Harford

University of Washington

Feng Jiang

University at Buffalo - School of Management

Rong Wang

Singapore Management University; Singapore Management University - Lee Kong Chian School of Business

Fei Xie

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

Date Written: July 26, 2018

Abstract

Because analysts strategically allocate more effort to portfolio firms that are relatively more important for their careers, a firm’s information environment is impacted by other firms covered by its analysts. Controlling for analyst and firm characteristics, an analyst makes more accurate, frequent, and informative earnings forecasts and recommendations for firms ranked higher within her portfolio based on proxies for importance to institutions. Firms’ relative ranks vary widely across analysts, but when a larger proportion of analysts consider a firm to be relatively important, its information environment improves. Analysts most strategically allocating effort are more likely to experience favorable career outcomes.

Keywords: Sell-side analysts; Effort allocation; Limited attention; Career concerns; Earnings forecast; Stock recommendation; Firm information environment; Labor market outcomes

Suggested Citation

Harford, Jarrad and Jiang, Feng and Wang, Rong and Xie, Fei, Analyst Career Concerns, Effort Allocation, and Firms’ Information Environment (July 26, 2018). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2947193 or http://dx.doi.org/10.2139/ssrn.2947193

Jarrad Harford (Contact Author)

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

Feng Jiang

University at Buffalo - School of Management ( email )

344 Jacobs Management Center
Buffalo, NY 14260
United States
716-645-3225 (Phone)

Rong Wang

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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 ECARES ULB CP 114
B-1050 Brussels
Belgium

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