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Prior research finds evidence that investor underreaction to clustered earnings announcements is likely due to limited attention. But it is unclear whether sophisticated market participants such as financial analysts are similarly subject to a limited attention effect. In this study we investigate whether analysts respond to earnings announcement events differently if more than one firm in their coverage portfolios announce earnings on the same day (“Busy Analysts”). We find significant evidence that, for the same firm, analysts delay or even skip issuing earnings forecasts in the quarters when they are busy versus quarters when they are not. Compared with “Not-busy Analysts”, the initial responses of Busy Analysts are of lower forecast quality (in terms of forecast accuracy improvements, forecast boldness, and the price impact of forecasts). Further, we find that when analysts face multiple concurrent earnings announcements, they tend to prioritize issuing forecasts for firms with richer information environments over firms with weaker information environments. At the firm level, when a larger percentage of analysts covering the firm are busy, the analysts as a whole are less responsive to the firm’s earnings announcements, implying that the price discovery after the information event is slower. Our study extends the literatures of limited attention and analysts’ information production.
Matthew Driskill, California State University at Fullerton
Marcus Paul Kirk, University of Florida
Jennifer Wu Tucker, University of Florida