Do Connections with Buy-Side Analysts Inform Sell-Side Analyst Research?
52 Pages Posted: 12 Oct 2017 Last revised: 11 Apr 2018
Date Written: February 14, 2018
We hypothesize that connections with buy-side analysts provide a sell-side analyst with private information generated by the buy-side that enhances the quality of sell-side research. We proxy for these connections with the number of stocks at the intersection of stocks held in the portfolios of institutional investors and followed by the sell-side analyst. The larger this intersection, the more opportunities the sell-side analyst has to interact with institutional investors. We proxy for the research quality of the sell-side analyst with her earnings forecast accuracy. We find that such connections enhance the accuracy of earnings forecasts, but up to a point of diminishing returns. Additional tests rule out reverse causality and omitted variables as explanations for the association, and strengthen the inference that connections between sell- and buy-side analysts increase the flow of information and improve the quality of sell-side research output.
Keywords: sell-side analysts, buy-side analysts, institutional investors
JEL Classification: G14, G23, M41
Suggested Citation: Suggested Citation