Does Competition Between Experts Improve Information Quality: Evidence from the Security Analyst Market

Chuqing Jin

No 24-1553, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper studies how competition affects the quality of information provided by security analysts. Security analysts compete to make earnings forecasts and are rewarded for being more accurate than their peers. This leads them to distort their forecasts to differentiate but also disciplines them against reporting over-optimistic forecasts. I structurally estimate a contest model capturing both effects and simulate counterfactual policies changing analysts’ incentives. I find the disciplinary effect dominates: rewarding relative accuracy reduces analysts’ forecast errors, but at the cost of increasing forecast noise. It is optimal to have moderate analyst competition, balancing more aggregate information against intensified distortions.

Keywords: forecasting contest; security analyst; competition (search for similar items in EconPapers)
JEL-codes: D80 G20 L10 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:129580

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