Cultural Diversity on Wall Street: Evidence from Consensus Earnings Forecasts

56 Pages Posted: 10 Nov 2017 Last revised: 5 Mar 2021

See all articles by Kenneth J. Merkley

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

Roni Michaely

The University of Hong Kong; ECGI

Joseph Pacelli

Harvard Business School

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

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Joseph Pacelli (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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