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Revolving Door Sell-Side Analysts

Thu, April 24, 2:00 to 3:40pm, Hilton Salt Lake City Center, TBA

Abstract

In this paper I study the characteristics of former sell-side analysts who have been hired in a firm that they previously covered. I find that former analysts issue more accurate earnings forecasts of the firms that hire them, as well as more optimistic price targets. This is even more pronounced in the year prior to the move. In contrast to the increased optimism toward their future employers, these analysts become more pessimistic toward the other firms that they cover. Firms that hire these former analysts as investor relations officers are more likely to beat the consensus forecast, suggesting that these former analysts are better able to manage analysts’ expectations. Taken together the results suggest that the company decision to hire an analyst following it can be justified from an ex-ante and an ex-post perspective. However, the evidence also indicates that the analysts bias their recommendation in the year prior to the move.

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