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Analysts' knowledge structure and performance

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  • Sheng Cao
  • Shuang Xue
  • Hongjun Zhu

Abstract

This article examines the effect of financial analysts' knowledge structure on their forecast performance based on manually collected data of 1590 sell‐side financial analysts' educational background. The longer the period of higher education in one major, the profounder the knowledge in a specific area (Ng & Feldman, Personnel Psychology, 62, 2009, 89), and the less likely it is grasped by self‐education outside university. Thus, we argue that analysts who study the same (different) major in undergraduate and postgraduate periods have deeper (wider) knowledge and better (poorer) understanding to a major‐related industry (Brown et al., Journal of Accounting Research, 53, 2015, 1). Our results show that financial analysts with deeper knowledge tend to release more accurate earnings forecasts and their earnings revisions evoke larger market reactions. The forecast advantage of analysts with deeper knowledge is more pronounced when firms' business is more concentrated or more relevant to analysts' knowledge. We conclude that the knowledge structure cultivated by higher education can partially explain analysts' job performance and deeper knowledge can bring better industry understanding besides work experience (Bradley et al., The Journal of Finance, 72, 2017, 751).

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  • Sheng Cao & Shuang Xue & Hongjun Zhu, 2022. "Analysts' knowledge structure and performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(5), pages 4727-4753, December.
    • Handle: RePEc:bla:acctfi:v:62:y:2022:i:5:p:4727-4753
    DOI: 10.1111/acfi.13026
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    Cited by:

    1. Guanming He & Yun Sun & April Zhichao Li, 2024. "Does analysts’ industrial concentration affect the quality of their forecasts?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 38(1), pages 37-91, March.
    2. Gjergji Cici & Philip B. Shane & Yanhua Sunny Yang, 2024. "Do buy‐side analysts inform sell‐side analyst research?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 657-691, March.

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