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
Date Written: July 26, 2018
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
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