Do Connections with Buy-Side Analysts Inform Sell-Side Analyst Research?

• In Event: Analysts as a product of the capital markets

Abstract

We hypothesize that connections with buy-side analysts provide sell-side analysts with private information generated by the buy-side that enhances the quality of sell-side research. We proxy for these connections with a variable measuring the number of stocks at the intersection of stocks held in the portfolios of institutional investors and followed by sell-side analysts. We proxy for research quality with a variable measuring the relative accuracy of earnings forecasts produced by sell-side analysts. We find that such connections enhance the accuracy of earnings forecasts, but up to a point of diminishing returns. Additional tests rule out that the observed association is due to reverse causality.

Authors

• Gjergji Cici, College of William and Mary

• Philip B Shane, College of William & Mary

• Yanhua Sunny Yang, University of Connecticut