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Cultural diversity on Wall Street: Evidence from consensus earnings forecasts

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  • Merkley, Kenneth
  • Michaely, Roni
  • Pacelli, Joseph

Abstract

We examine how cultural differences among agents influence the aggregate outcome of a common forecasting task. Using both exogenous shocks to sell-side analyst diversity and panel regression methods, we find that increases in analyst cultural diversity positively affect the quality of the consensus earnings forecast. We further provide evidence on the potential mechanisms underlying this result by showing that cultural diversity is associated with improvements in individual analyst forecasts, greater analyst conference call participation and interaction, and greater diversity in analyst education backgrounds and professional interests. Overall, our results indicate that greater cultural differences among agents producing an aggregate forecast are associated with a higher quality consensus forecast.

Suggested Citation

  • Merkley, Kenneth & Michaely, Roni & Pacelli, Joseph, 2020. "Cultural diversity on Wall Street: Evidence from consensus earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 70(1).
  • Handle: RePEc:eee:jaecon:v:70:y:2020:i:1:s016541012030032x
    DOI: 10.1016/j.jacceco.2020.101330
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    4. Zhao, Hong, 2022. "Management team cultural alignment and mergers and acquisitions," Finance Research Letters, Elsevier, vol. 46(PB).
    5. Vesa Pursiainen, 2022. "Cultural Biases in Equity Analysis," Journal of Finance, American Finance Association, vol. 77(1), pages 163-211, February.
    6. Wang, Ying & Liu, Zisen & Wang, Xin, 2022. "The supply of analysts and earnings forecasts," International Review of Financial Analysis, Elsevier, vol. 84(C).
    7. William C Gerken & Marcus O Painter & Itay Goldstein, 2023. "The Value of Differing Points of View: Evidence from Financial Analysts’ Geographic Diversity," The Review of Financial Studies, Society for Financial Studies, vol. 36(2), pages 409-449.
    8. Jung Ho Choi & Joseph Pacelli & Kristina M. Rennekamp & Sorabh Tomar, 2023. "Do Jobseekers Value Diversity Information? Evidence from a Field Experiment and Human Capital Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 61(3), pages 695-735, June.

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    More about this item

    Keywords

    Diversity; Culture; Forecasting; Sell-side analysts; Information aggregation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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