Cross-Industry Information Sharing among Colleagues and Analyst Research
70 Pages Posted: 7 Jan 2020 Last revised: 21 Jan 2021
Date Written: December 12, 2019
We identify a specific organizational resource in brokerage houses—information sharing among analyst colleagues who cover economically related industries along a supply chain. We hypothesize that this resource benefits analyst research and allows analysts to have a higher level of industry specialization. The impact of this resource depends on colleagues’ information complementarity, which we measure using the level of economic connection between an analyst’s industry and her colleagues’ industries. We perform various empirical analyses to control for brokerage selection effects and find evidence consistent with our predictions. Specifically, we find that analysts with colleagues who are more economically connected have higher earnings forecast accuracy, stock recommendation profitability, and investor recognition, and that analysts and highly connected colleagues tend to issue revision reports contemporaneously. We further show that colleagues’ coverage of downstream (upstream) industries are positively related to the accuracy of only the analyst’s revenue (expense) forecasts. Last, we find that information sharing among colleagues allows analysts, especially less capable ones, to cover a more specialized research portfolio. Overall, our findings align with the theory of the firm that a firm’s organizational structures contribute to employee performance and specialization.
Keywords: financial analyst, information sharing, economically connected industries, supply chain, industry specialization, coverage decision, forecast accuracy, recommendation profitability, All-Star
JEL Classification: D23, G29, L14, M14, M40, M41
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