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Ties That Bind: The Value of Professional Connections to Sell-Side Analysts

Daniel Bradley (), Sinan Gokkaya () and Xi Liu ()
Additional contact information
Daniel Bradley: Department of Finance, University of South Florida, Tampa, Florida 33620
Sinan Gokkaya: Department of Finance, Ohio University, Athens, Ohio 45701
Xi Liu: Department of Finance, Miami University, Oxford, Ohio 45056

Management Science, 2020, vol. 66, issue 9, 4118-4151

Abstract: We examine professional connections among executives and analysts formed through overlapping historical employment. Analysts with professional connections to coverage firms have more accurate earnings forecasts and issue more informative buy and sell recommendations. These analysts are more likely to participate, be chosen first, and ask more questions during earnings conference calls and analyst/investor days. Homophily based on gender, age, and ethnicity is orthogonal to professional connections. Brokers attract greater trade commissions on stocks covered by connected analysts. Firms benefit through securing research coverage and invitations to broker-hosted investor conferences emulating from these connections.

Keywords: analyst forecasts; analyst recommendations; all-star analysts; professional networks; professional connections; capital market relationships; management access; homophily; analyst coverage; Regulation FD; broker commissions; earnings conference calls; analyst/investor days; broker-hosted conferences (search for similar items in EconPapers)
Date: 2020
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