Analyst Team Diversity and Analyst Performance
Posted: 19 Feb 2021
Date Written: December 18, 2020
We examine the impact of informational and social analyst team diversity on forecast performance. We find that informational diversity is associated with less timely forecasts, whilst it is associated with more accurate forecasts. These findings are consistent with the group dynamics literature which indicates that the more diversified the skillsets of individuals the more beneficial their decision-making. Further analysis indicates the benefits of diversity is more pronounced when the forecast firm is more complex, but moderated when the brokerage house has greater access to proprietary information. We also find informational diversity decrease an analyst’s probability of gaining star status, confirming the benefits of a homophilic environment. Overall, our findings suggest that whichever is the greater need, accuracy or timeliness, will govern the choice of whether to build an informationally diverse analyst team.
Keywords: Analyst teams, informational diversity, social diversity, forecast accuracy, forecast timeliness, star analysts
JEL Classification: G20, G23, G24, M14
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