Analysts' industry recommendations and earnings forecasting performance

다국어 초록 (Multilingual Abstract)

This study examines the relation between analysts’ industry knowledge and their earnings forecast accuracy. Using analysts’ promulgation of industry recommendations or outlooks in their research report as a proxy for their industry knowledge, I find that analysts with industry knowledge predict earnings more accurately than those without such knowledge. However, the beneficial effect of industry knowledge on earnings forecast accuracy would not be uniform across firms. I conjecture that analysts’ industry knowledge will be more useful for firms whose performance is more synchronous with that of the industry. Consistent with the prediction, analysts with industry knowledge exhibit superior earnings forecasting performance when they cover firms with high stock return synchronicity with the industry. In contrast, I find no beneficial effect of analysts’ industry knowledge for firms with low stock return synchronicity with the industry.

목차 (Table of Contents)

• Ⅰ INTRODUCTION 1
• Ⅱ PRIOR LITERATURE 6
• 2.1 Determinants of Analysts’ Forecast Accuracy 6
• 2.2 Analysts’ Provisions of Industry Recommendations 8
• Ⅲ HYPOTHESES 12
• 3.1. Industry Recommendation as a Proxy for Industry Knowledge 12
• 3.2. Hypothesis Development 13
• Ⅳ RESEARCH DESIGN 17
• 4.1 Variable Description and Measurement 17
• 4.1.1 Dependent Variable 17
• 4.1.2 Analyst Characteristics 17
• 4.1.3 Stock Return Synchronicity 18
• 4.2 Research Design 20
• Ⅴ SAMPLE 26
• Ⅵ EMPIRICAL RESULTS 28
• 6.1. Descriptive Statistics 28
• 6.2. Impact of Analysts’ Industry Knowledge on Analysts’ Earnings Forecast Accuracy 33
• 6.3. Are the Beneficial Effect of Analysts’ Industry Knowledge on their Earnings Forecast Accuracy Uniform across Firms? 34
• Ⅶ ADDITIONAL ANALYSES 39
• 7.1. Subsample analysis (1) – Analysts who issue industry recommendations 39
• 7.2. Subsample analysis (2) – Industries that analysts issue industry recommendations (same analyst-industry with different firms) 40
• 7.3. Subsample analysis (3) – Industries that analysts issue industry recommendations (same analyst with different industry-firms) 42
• 7.4. Subsample analysis (4) – Brokerage houses whose affiliated analysts provide industry recommendations 44
• 7.5. Subsample analysis (5) – Industries covered by brokerage houses whose affiliated analysts provide industry recommendations 46
• Ⅷ ROBUSTNESS CHECKS 48
• 8.1 Endogeneity issues 48
• 8.2 Alternative proxies for synchronicity 52
• 8.2.1 Sales synchronicity 52
• 8.2.2 Earnings synchronicity 56
• Ⅸ CONCLUSION 60
• REFERENCES 61
• Appendix. Definition and Measurement of Variables 67