Ties That Bind: The Value of Professional Connections to Sell-Side Analysts

Abstract

We examine professional connections among executives and analysts formed through overlapping historical employment. Analysts with professional connections to coverage firms have more accurate earnings forecasts, and issue more informative buy and sell recommendations. These analysts are more likely to participate, be chosen first, and ask more questions during earnings conference calls and analyst/investor days. Homophily based on gender, age and ethnicity is orthogonal to professional connections. Brokers attract greater trade commissions on stocks covered by connected analysts. Firms benefit through securing research coverage and invitations to broker-hosted investor conferences emulating from these connections.

Keywords: analyst forecasts, analyst recommendations, all-star analysts, professional networks, professional connections, capital market relationships, management access, homophily, analyst coverage, Regulation FD, broker commissions, earnings conference calls, analyst/investor days, broker hosted conferences

JEL Classification: G10, G11, G20, G23, G24