Climatic Disasters and Distracted Analysts

Abstract

Using climatic disasters in the U.S., we find that earnings forecasts by analysts who experienced a major climatic disaster become less accurate than those by the unaffected analysts within three months after the disaster due to distracted attention. Disaster-zone analysts are more likely to allocate their attention to firms of greater importance or salience, and they tend to reiterate their previous forecasts to maintain the quantity and timeliness of their forecasts. Furthermore, we find that climatic disasters adversely affect the information environment of firms that are unaffected by the disasters but covered by disaster-zone analysts, suggesting a spillover effect of idiosyncratic shocks via financial intermediaries. Overall, we document the real impact of cognitive bias on financial professionals’ performance.

Keywords: Climatic Disasters; Analyst; Earnings Forecast; Limited Attention; Salience; Spillover

JEL Classification: G24, G41, Q54