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Analyst Reputation and Limited Attention: How Does Firm Visibility Impact Measures of Reputation?

Fri, April 5, 1:45 to 3:25pm, Hyatt Regency Savannah, TBA

Abstract

We investigate the determinants of analyst reputation, as evidenced by Institutional Investor rankings, considering whether limited attention impacts the results. We hypothesize that capital market participants have limited attention and therefore assess reputation based on the analyst’s large-firm forecast performance, not the analyst’s performance as a whole. Our empirical results support this hypothesis. We find no relation between an analyst’s overall forecast accuracy and initial ranking but a significantly positive relation between analyst large-firm forecast accuracy and initial ranking. Similarly, we find a positive relation between large-firm forecast accuracy and all rankings, but no relation between small-firm forecast accuracy and all rankings. Our study reconciles conflicting studies that make a case both for and against reputation being a function of forecast accuracy. Our study also contributes to the broader literature investigating analyst incentives and suggests that high reputation analysts allocate their limited resources to the largest firms in their portfolios.

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