Seminar (Dept. of Accounting)

Theme：The causal effect of star rankings on analysts’ behavior: Evidence from Institutional Investor’s industry sector changes

Speaker：Rubin HAO, Lecturer, Beijing Normal University

Time：2022-04-20 14:00

Address：Online Meeting

Language：Chinese/English

ABSTRACT:

The Institutional Investor (II) magazine, the organizer of the most influential star analyst rankings in the U.S., ranks sell-side analysts by industry sectors every year. We use II’s industry sector changes as an arguably exogenous “shock” to analysts’ incentives and examine the causal effect of star rankings on analysts’ behavior. We exploit the framework of tournament theory and view analysts as participants in the II “All-Star” tournament. We find that analysts issue more frequent, more accurate, and more timely EPS forecasts after II sector expansions when more star positions are created. This effect is more pronounced for non-star analysts who are closest competitors with star analysts (i.e., analysts with past runner-up status and non-star analysts at large brokerage houses) than other non-star analysts. These results suggest that the II rankings are not merely popularity contests, but indeed cause analysts to exert more research effort in pursuit of the star status.