The Value of Differing Points of View: Evidence from Financial Analysts' Geographic Diversity

Abstract

Using satellite imagery of retail firms’ parking lots to measure time-varying local firm-specific performance, we document that analysts incorporate local information into their forecasts. Analysts rely more on local signals when less firm-wide information is available. This incorporation of noisy local firm information has firm-level implications. Examining across industries, we find causal evidence that geographic concentration of analysts increases consensus forecast errors and decreases firm liquidity. These effects are stronger for harder-to-value stocks. The market values geographic firm information, as the abnormal return around forecast revisions is higher for analysts who cover a firm from a unique location.

Keywords: Analysts, Fintech, Geography, Diversity, Forecasts, Liquidity

JEL Classification: G14, G24, O3, M41