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Earnings Forecast Accuracy And Career Concerns

Tristan Roger ()

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Abstract: Previous studies show that analysts' compensation is not linked to earnings forecast accuracy. We evidence however that analysts have incentives to issue accurate forecasts. We show that brokerage houses reward their best forecasters by assigning them to large, mature firms. Covering such firms increases the potential for future compensation as these firms generate a great deal of investment banking and trading activities. The coverage of such firms also increases analysts' exposure to large buy-side investors. We find that analysts covering large, mature firms are twice as likely to be recognized as star analysts by Institutional Investor. We explain our findings on forecast accuracy as the result of brokerage houses' concerns for reputation.

Keywords: Forecast accuracy; Brokerage houses; Analysts' compensation; Reputation; Carrer (search for similar items in EconPapers)
Date: 2015-06
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Published in 32nd International Conference of the French Finance Association - AFFI 2015, Jun 2015, Cergy, France. pp.29

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