Cultural Diversity on Wall Street: Evidence from Consensus Earnings Forecasts

56 Pages Posted: 10 Nov 2017 Last revised: 5 May 2020

See all articles by Kenneth J. Merkley

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Date Written: April 30, 2020

Abstract

We examine how cultural differences among agents influence the aggregate outcome of a common forecasting task. Using both exogenous shocks to sell-side analyst diversity and panel regression methods, we find that increases in analyst cultural diversity positively affect the quality of the consensus earnings forecast. We further provide evidence on the potential mechanisms underlying this result by showing that cultural diversity is associated with improvements in individual analyst forecasts, greater analyst conference call participation and interaction, and greater diversity in analyst education backgrounds and professional interests. Overall, our results indicate that greater cultural differences among agents producing an aggregate forecast are associated with a higher quality consensus forecast.

Keywords: Diversity; Culture; Forecasting; Sell-side analysts; Information aggregation

Suggested Citation

Merkley, Kenneth J. and Michaely, Roni and Pacelli, Joseph, Cultural Diversity on Wall Street: Evidence from Consensus Earnings Forecasts (April 30, 2020). Journal of Accounting & Economics (JAE), Forthcoming; Swiss Finance Institute Research Paper No. 19-07. Available at SSRN: https://ssrn.com/abstract=3068232 or http://dx.doi.org/10.2139/ssrn.3068232

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Joseph Pacelli (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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