Analyst firm coverage and forecast accuracy: The effect of regulation fair disclosure

Publication Type

Journal Article

Publication Date

12-2017

Abstract

In this study, we revisit the relationship between analyst firm coverage and forecast accuracy. In contrast to the proposed negative association in Clement (1999) owing to the portfolio complexity effect, we hypothesize an economy-of-scale effect' that is likely to dominate when analysts rely mostly on public information. In support of the latter effect, we find a positive association between firm coverage and forecast accuracy after the enactment of Regulation Fair Disclosure (Reg FD), which substantially reduces the flow of material private information to analysts. Such a result survives a battery of robustness analyses. We further show that, in the post-Reg FD period, covering more firms increases an analyst's probability of being selected as a star analyst in the subsequent year. Overall, our findings highlight the importance of the information environment in shaping the economic link between an analyst's firm coverage and forecast accuracy.

Keywords

Analyst portfolio, Forecast accuracy, Information complementarity, Regulation FD

Discipline

Databases and Information Systems | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Information Systems and Management

Publication

Abacus

Volume

53

Issue

4

First Page

450

Last Page

484

ISSN

0001-3072

Identifier

10.1111/abac.12120

Publisher

Wiley: 24 months

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/abac.12120

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