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The heterogeneous impact of industry concentration on analyst performance

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  • Nguyen, Lan Thi Mai
  • Cheong, Chee Seng
  • Zurbruegg, Ralf

Abstract

We examine the impact that industry concentration has on superior and inferior analysts' performance by utilizing a Herfindahl-Hirschman index of analyst specialization. Using broker M&As as a plausibly exogenous shock to analyst workloads, we find that superior analysts' forecast accuracy improves when their coverage is more concentrated within a few industries. However, there is no evidence of an equivalent improvement for inferior analysts. We argue that this is due to superior analysts having a comparative advantage in utilizing intra-industry relevant information and, therefore, the more concentrated their portfolio, the better they can extract this type of information for pricing stocks. We also find that investors who trade according to the buy-sell recommendations of superior analysts who have recently experienced increased industry concentration can gain extra returns on their stock portfolio.

Suggested Citation

  • Nguyen, Lan Thi Mai & Cheong, Chee Seng & Zurbruegg, Ralf, 2022. "The heterogeneous impact of industry concentration on analyst performance," Advances in accounting, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:advacc:v:59:y:2022:i:c:s0882611022000487
    DOI: 10.1016/j.adiac.2022.100629
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    More about this item

    Keywords

    Financial analysts; Industry concentration; Forecast accuracy; Broker M&A; Human capital;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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