| Title: | Does competition induce analyst effort? evidence from a natural experiment of broker mergers | Authors: | Wang, Z Sun, L Wei, KCJ |
Issue Date: | Oct-2020 | Source: | Journal of banking and finance, Oct. 2020, v. 119, 105914 | 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 effort Analyst forecast activities Competition Herding Strategy deviation |
Publisher: | Elsevier | Journal: | Journal of banking and finance | ISSN: | 0378-4266 | EISSN: | 1872-6372 | DOI: | 10.1016/j.jbankfin.2020.105914 |
| Appears in Collections: | Journal/Magazine Article |
Access
View full-text via PolyU eLinks 
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.