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Mutual Forbearance and Competition Among Security Analysts

Author

Listed:
  • Joel A. C. Baum

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Anne Bowers

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Partha Mohanram

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

Abstract

Research in industrial organization and strategic management has shown that rivals competing with each other in multiple markets are more willing to show each other mutual forbearance, i.e., compete less aggressively, within their spheres of influence, i.e., the markets in which each firm dominates. Sell-side equity analysts typically cover multiple stocks in common with their rivals. We examine the impact of this “multipoint contact” for mutual forbearance on two key dimensions of competition among security analysts: forecast accuracy and information leadership (issuing earnings forecasts or stock recommendations that influence rival analysts). We find that multipoint contact is associated with analysts exerting greater information leadership on stocks within their own spheres of influence. We also find greater forbearance related to information leadership under Regulation Fair Disclosure (Reg FD). In contrast, multipoint contact was not associated with greater forecast accuracy on stocks within analysts’ spheres of influence, either before or under Reg FD. Our analysis is among the first to consider mechanisms of competition among securities analysts and also adds to the literature on Reg FD by demonstrating that the increased workload imposed on analysts after Reg FD fostered mutual forbearance as a response. This paper was accepted by Mary Barth, accounting .

Suggested Citation

  • Joel A. C. Baum & Anne Bowers & Partha Mohanram, 2016. "Mutual Forbearance and Competition Among Security Analysts," Management Science, INFORMS, vol. 62(6), pages 1610-1631, June.
  • Handle: RePEc:inm:ormnsc:v:62:y:2016:i:6:p:1610-1631
    DOI: 10.1287/mnsc.2015.2205
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    References listed on IDEAS

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    Cited by:

    1. Astaiza-Gómez, José Gabriel, 2021. "Investors' Information Choice," MPRA Paper 110008, University Library of Munich, Germany.
    2. Connie X. Mao & Wei-Ling Song, 2021. "Does Reciprocity Affect Analysts’ Incentives to Release Timely Information? Evidence from Syndication Relationships in Securities Underwriting," Management Science, INFORMS, vol. 67(1), pages 617-639, January.
    3. Lee, Kenneth & Manochin, Melina, 2021. "Sell-side equity analysts and equity sales: a study of interaction," LSE Research Online Documents on Economics 108953, London School of Economics and Political Science, LSE Library.
    4. Daniel M. Olson & David M. Waguespack, 2020. "Strategic behavior by market intermediaries," Strategic Management Journal, Wiley Blackwell, vol. 41(13), pages 2474-2492, December.
    5. Lee, Kenneth & Manochin, Melina, 2021. "Sell-side equity analysts and equity sales: A study of interaction," The British Accounting Review, Elsevier, vol. 53(5).
    6. Jose N. Uribe, 2020. "Multipoint contact without forbearance? How coverage synergies shape equity analysts' forecasting performance," Strategic Management Journal, Wiley Blackwell, vol. 41(10), pages 1901-1932, October.

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