Hardening Soft Information: Evidence on Analyst Integration Costs

Kerry Xiao and Amy Zang

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Abstract: We examine how the cost of transforming qualitative information into precise numerical estimates--a form of integration cost--creates a structural friction in expectations formation. To isolate this integration cost from the costs of information awareness and acquisition, we exploit sell-side analyst reports, in which the same forecaster simultaneously produces textual narratives and numerical forecasts. Because the information underlying the text has already been acquired, any systematic gap between the two outputs can be attributed to integration costs. We document systematic quantification inefficiency: an analyst's textual tone negatively predicts her contemporaneous forecast errors and positively predicts her subsequent numerical revisions, revealing that analysts leave part of their qualitative insights unquantified until further evidence arrives. Consistent with this integration-friction explanation, this inefficiency intensifies when reports are linguistically vaguer, environmental uncertainty is higher, or analysts' processing capacity is more constrained, and it persists where strategic and behavioral explanations are weaker. Our findings provide direct, large-sample evidence that integration costs constitute a distinct economic friction, explaining why soft information carries value-relevant content beyond contemporaneous hard numbers.

Date: 2025-05, Revised 2026-10
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