Do Financial Analysts Play a Complementary or Substitutive Role in the Corporate Information Environment? Evidence from Organised Labour

50 Pages Posted: 25 Nov 2020

See all articles by Steven Xianglong Chen

Steven Xianglong Chen

University of Liverpool - Management School (ULMS)

Edward Lee

University of Manchester - Alliance Manchester Business School

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

Date Written: January 15, 2020

Abstract

This paper explores the primary role of financial analysts in the context of unionised firms, where investors have greater information demand. Previous literature suggests that labour unions create substantial uncertainty in firms and undermine the information environment, while another strand of literature argues that analysts devote more effort to generating valuable information through original research in the case of heightened uncertainty or information asymmetry. To date, it is unclear whether financial analysts, as professional information intermediaries, are affected by organised labour. Using a large U.S. sample over the period of 1983-2015, we find that the labour unionisation rate is associated with lower forecast accuracy and higher forecast dispersion, suggesting that financial analysts predominantly play a “complementary role” rather than a “substitutive role” when firms are facing significant uncertainty in human capital. Overall, our study has important implications for managers, financial analysts and regulators, by highlighting the value and hence the necessity of non-financial information disclosure specific to a key intangible asset of firms, i.e., their employees.

Keywords: financial analysts; information intermediary, earnings forecast, uncertainty, human capital management, labour unions

JEL Classification: G14, J53, M54

Suggested Citation

Chen, Steven Xianglong and Lee, Edward and Stathopoulos, Konstantinos, Do Financial Analysts Play a Complementary or Substitutive Role in the Corporate Information Environment? Evidence from Organised Labour (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=3708260 or http://dx.doi.org/10.2139/ssrn.3708260

Steven Xianglong Chen (Contact Author)

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

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