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The Boss Knows Best: Directors of Research and Subordinate Analysts

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  • Bradley, Daniel
  • Gokkaya, Sinan
  • Liu, Xi

Abstract

Research departments are managed by directors of research (DORs). Subordinate analysts working for higher-quality DORs provide superior earnings forecasts that elicit stronger market reactions, provide better investment recommendations, and have better career outcomes. For the broker, higher-quality DORs drive more trading commissions. Economically, analysts benefit the most from DOR–analyst industry alignment resulting from DORs’ former analyst experience. We provide several tests to mitigate endogeneity concerns and explore various mechanisms to explain these results. Overall, our article identifies a unique channel whereby the industry-specific and general human capital of top management filters through to individual subordinates and consequently improves organizational performance.

Suggested Citation

  • Bradley, Daniel & Gokkaya, Sinan & Liu, Xi, 2019. "The Boss Knows Best: Directors of Research and Subordinate Analysts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(3), pages 1403-1446, June.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:03:p:1403-1446_00
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    Cited by:

    1. Hope, Ole-Kristian & Li, Congcong & Lin, An-Ping & Rabier, MaryJane, 2021. "Happy analysts," Accounting, Organizations and Society, Elsevier, vol. 90(C).
    2. Luong, Thanh Son & Qiu, Buhui & Wu, Yi (Ava), 2021. "Does it pay to be socially connected with wall street brokerages? Evidence from cost of equity," Journal of Corporate Finance, Elsevier, vol. 68(C).
    3. Huang, Allen H. & Lin, An-Ping & Zang, Amy Y., 2022. "Cross-industry information sharing among colleagues and analyst research," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    4. Hadiye Aslan, 2022. "Personal Financial Distress, Limited Attention," Journal of Accounting Research, Wiley Blackwell, vol. 60(1), pages 97-128, March.

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