 Does competition induce analyst effort? evidence from a natural experiment of broker mergersZhen Wang, Lei Sun and K.C. John Wei Journal of Banking & Finance, 2020, vol. 119, issue C Abstract: Hong and Kacperczyk (2010) document that decreases in analyst competition due to broker mergers encourage analysts to please managers, leading to greater consensus optimism bias. We propose three additional effects of analyst competition. The analyst effort hypothesis suggests that weaker competition reduces analysts’ incentives to collect and analyze information. The herding hypothesis argues that weaker competition reduces analysts’ career concerns, which in turn reduces herding incentives. The strategic deviation hypothesis implies that weaker competition alleviates analysts’ incentives to strategically deviate from others. We find that after broker mergers, analysts follow fewer firms and switch their coverage from firms with more to those with less R&D expenses. They weigh their private information less when it is unfavorable. At the same time, their forecasts become more dispersed. All these findings appear to be more consistent with the analyst effort hypothesis than the herding or strategic deviation hypothesis. Keywords: Analyst forecast activities; Competition; Analyst effort; Herding; Strategy deviation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:119:y:2020:i:c:s0378426620301758 DOI: 10.1016/j.jbankfin.2020.105914 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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