Article

On the Structure of Analyst Research Portfolios and Forecast Accuracy

Journal of Accounting Research (Impact Factor: 2.38). 09/2009; 47(4):867-909. DOI: 10.1111/j.1475-679X.2009.00338.x
Source: RePEc

ABSTRACT ABSTRACT This study provides insights into the forces and constraints that shape analyst research coverage along country and sector dimensions and the impact of the structure of an analyst's portfolio on forecast accuracy. We find that analyst specialization by country and sector is sensitive to the extent to which firms "within" a country or sector and firms "across" country-sectors are exposed to common economic forces, the potential for revenue generation, and broker culture. Our tests indicate that existing research on the relation between analyst portfolio structure and forecast accuracy may suffer from an endogeneity bias. We use our analysis of analyst specialization to develop controls for this bias. Once we employ these controls, we find that country diversification is associated with superior forecast accuracy. However, the relation between sector diversification and forecast accuracy is context-specific. Specifically, sector diversification enhances forecast accuracy in an international context, while it detracts from forecast accuracy in a domestic U.S. context. Copyright (c), University of Chicago on behalf of the Accounting Research Center, 2009.

0 Followers
 · 
105 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This study examines the antecedents and consequences of analysts choosing to become supply chain analysts (i.e., analysts following both a supplier and its major customer). We find that information complementarities between firms in the same supply chain, between a supplier firm and its industry peer firms, and between the supplier’s major customer and other firms in analysts’ portfolio affect their supply chain specialization decision. The potential revenues supplier firms generate for analysts’ brokerage houses also significantly affect this decision. While supply chain analysts achieve superior forecast performance compared to non-supply chain analysts for supplier firms, they provide lower quality forecasts for other firms in their portfolios. These findings suggest that analysts allocate resources strategically. Our results are robust to techniques designed to address the potential endogeneity of analysts’ supply chain portfolio choices.
    The Accounting Review 09/2015; DOI:10.2308/accr-51011 · 2.42 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: While directors provide both advice and monitoring – there is limited understanding of their role as advisors: are certain types of directors chosen for their advice and do they contribute to firm value? Our approach is to identify a potentially important information gap – pertaining to the firm's supply chain – that "supply-chain directors" (SCDs) can help bridge. SCDs are officers and/or directors of companies in the upstream (supplier) or downstream (customer) industries of the firm. About 40% of firm-years in our sample (1990–2005) have at least one SCD. We propose and test information and market structure hypotheses about the use of SCDs. Our hypotheses are empirically supported: firm and industry innovativeness, degree of vertical integration in the industry, market share, and industry concentration increase, while stock price informativeness and industry homogeneity reduce the likelihood of SCDs on the board. Furthermore, after controlling for endogeneity, SCDs have an economically significant impact on firm performance (ROA) and value (Tobin's Q). for helpful comments. We thank Stephen Brown for sharing his data on the quarterly estimates of probability of informed trading. All errors are our own.
  • [Show abstract] [Hide abstract]
    ABSTRACT: We document that the likelihood of an analyst following a supplier–customer firm pair increases with the strength of the economic ties along the supply chain, as measured by the percentage of the supplier’s sales to the customer. Analysts who follow a covered firm’s customer provide more accurate earnings forecasts for the supplier firm than analysts who do not. While both types of analysts respond to and incorporate the earnings news from the customer firm into their revisions of the supplier’s earnings forecasts, supplier–customer analysts exhibit a larger improvement in their forecast accuracy for the supplier subsequent to the customer’s earnings announcements, when compared to other analysts. Overall, the evidence suggests that supplier–customer analysts benefit from the informational complementarities along the supply chain and improve their forecast accuracy as a result.
    Review of Accounting Studies 03/2014; 20(1). DOI:10.1007/s11142-014-9295-6 · 2.02 Impact Factor

Full-text (2 Sources)

Download
86 Downloads
Available from
May 22, 2014