Security Analysts' Career Concerns and Herding of Earnings Forecasts

Abstract

Several theories of reputation and herding (see, e.g., Scharfstein and Stein (1990)) suggest that herding among agents should vary with career concerns. Our goal in this paper is to document whether such a link exists in the labor market for security analysts. Specifically, we look at the relationship between an analyst's job tenure (a proxy for career concerns) and various measures of stock earnings forecast performance. We establish the following key results. (1) Older analysts are more likely to produce earnings forecasts of firms before younger ones. (2) Their forecasts also deviate more from the consensus forecast than their younger counterparts. We argue that these results are consistent with some reputational models of herding. We also establish a number of auxiliary findings regarding the relationship between forecast accuracy and frequency of forecast revisions with job tenure.