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Analysts' Private Connections

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Abstract

In this dissertation, I examine how analysts’ private connections to external peers across brokerages affect the quality of their research. I find that analysts with private connections (i.e., who are connected to external peers via past employment ties and covering the same firm) issue more accurate earnings forecasts than “unconnected” analysts. In addition, the effect of private connections on earnings forecast accuracy is more notable for analyst pairs who are, on average, employed by smaller brokerages, and who are, on average, less skilled, less experienced, and more resource constrained, thereby suggesting that private connections help to mitigate resource constraints and allow less skilled and less experienced analysts to improve their research through generating synergy. Importantly, the market underreacts to forecasts of privately connected analysts, leading to significant stock price drifts following forecast revisions. Using coverage terminations of connected peers as exogenous shocks to private connections, I find decreases in analyst forecast accuracy of the recipient analyst following coverage terminations of mutually covered stocks by connected peers due to permanent employment terminations of connected peers, brokerage terminations of the connected peers’ industry sector, and connected peers’ brokerage closures.

Journal / Series

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Description

90 pages

Sponsorship

Date Issued

2021-05

Publisher

Keywords

Brokerage Resources; External Peers; Financial Analyst; Private Connections

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Employer

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Union Local

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Committee Chair

Yeung, Ping Eric

Committee Co-Chair

Committee Member

Ng, David T.
Zuo, Luo

Degree Discipline

Management

Degree Name

Ph. D., Management

Degree Level

Doctor of Philosophy

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Government Document

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dissertation or thesis

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