Analyst teams
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Analyst teams Bingxu Fang 1 & Ole-Kristian Hope 1,2 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This paper examines the impact of teamwork on sell-side analysts’ performance. Using a hand-collected sample of over 50,000 analyst research reports, we find that analyst teams issue more than 70% of annual earnings forecasts. In contrast, most research implicitly assumes that forecasts are issued by individual analysts. We document that analyst teams generate more accurate earnings forecasts than individual analysts and that the stock market reacts more strongly to forecast revisions issued by teams. Analyst teams also cover more firms, issue earnings forecasts more frequently, and issue less stale forecasts. Analysts working in teams are more likely to be voted as All-Star analysts in the future. Among analyst teams, we show that team size and team member ability are significantly associated with forecast accuracy. Moreover, using detailed analyst background information from LinkedIn, we find that forecast accuracy is positively associated with team diversity based on sell-side experience, educational background, and gender. Additional analyses suggest that analyst teams, especially more diverse ones, are more likely to issue cash-flow forecasts and use discounted cash-flow valuation models in their reports. These findings suggest that teamwork and team diversity play a crucial role in understanding sell-side analysts’ performance. Keywords Teamwork . Analysts . Earnings forecasts . Diversity . Market reactions to
analyst revisions . All-star analysts . Cash-flow forecasts . DCF models . LinkedIn . Sellside . Education . Gender JEL classifications D83 . G11 . G24 . J24 . M14 . M41
* Ole-Kristian Hope [email protected] Bingxu Fang [email protected]
1
Rotman School of Management, University of Toronto, Toronto, Canada
2
BI Norwegian Business School, Oslo, Norway
B. Fang, O.-K. Hope
1 Introduction Teamwork plays an increasingly important role in organizations, including brokerage firms (Wei 2005). Sell-side equity analysts often lead a team with research associates, whose responsibilities include creating and maintaining valuation models, assisting in writing research reports, interacting with institutional investors, and keeping in touch with the management of companies under coverage. The associates usually start with technical roles during the early stage of their careers and gradually take on communication-based tasks as they gain more experience (Groysberg and Healy 2013; Bradshaw et al. 2017). Anecdotal evidence suggests that the nature of working in teams could considerably improve analysts’ performance. When Ms. Yates, who was selected as a Rising Star of Wall Street in 2014, talked about her cooperation with another analyst Robert Spingarn, she said: “We’ve really run this franchise as a team over the past couple of years … [Robert and I] leverage the expertise from each other. The fact that together we cover more than 30 stocks allows us to have
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