Career Concerns of Banking Analysts

Joanne  Horton; George  Serafeim; Shan  Wu

Article | Journal of Accounting & Economics | April–May 2017

Career Concerns of Banking Analysts

by Joanne Horton, George Serafeim and Shan Wu

Abstract

We study how career concerns influence banking analysts' forecasts and how their forecasting behavior benefits both them and bank managers. We show that banking analysts issue early in the year relatively more optimistic and later in the year more pessimistic forecasts for banks that could be their future employers. This pattern is not observed when the same analysts forecast earnings of companies that are not likely to be their future employers. Moreover, we use the Global Settlement as an exogenous shock, which limited outside opportunities and therefore exacerbated career concerns, and show that this forecast pattern is more pronounced after the Settlement. Both analysts and bank executives benefit from this behavior. Analysts issuing more biased forecasts for potential future employers are more likely to face favorable career outcomes and bank executives appear to profit from the analysts' bias since the bias is associated with higher levels of insider trading. Our results highlight the bias created by asking analysts to rate their outside opportunities in the labor market.

Keywords: sell-side analysts; analyst forecasts; analysts; investment recommendations; Career advancement; career management; Labor Mobility; labor market; Prejudice and Bias; Personal Development and Career; Forecasting and Prediction; Investment Banking;

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Citation:

Horton, Joanne, George Serafeim, and Shan Wu. "Career Concerns of Banking Analysts." Journal of Accounting & Economics 63, nos. 2-3 (April–May 2017): 231–252.

Case | HBS Case Collection | November 2017 (Revised July 2018)

Summa Equity: Building Purpose-Driven Organizations

George Serafeim and David Freiberg

In 2015, Reynir Indahl left top Nordic private equity firm Altor Equity Partners to found Summa Equity (Summa). After long contemplation following the financial crisis, Indahl was convinced the financial system was producing negative externalities and that the current private equity model adopted by most firms would no longer be successful. Summa was developed under a new private equity model that sought to “future-proof” businesses by focusing on long-term value creation and growth, in addition to traditional private equity practices of implementing best practices and productivity improvements. To find businesses best suited for long-term growth with disruptive potential, Summa invested in four thematic areas that were mapped to megatrends outlined in the United Nations Sustainable Development Goals—trends Summa believed presented long-term growth opportunities for businesses that presented commercial solutions for these challenges. After a period of successful recruiting, fund raising, and deal completion, Summa needed to develop a set of practices and expectations across portfolio companies and partners. The case concludes with Indahl contemplating exiting Summa’s first company. What should Summa look for in a buyer? Is sale price all that matters, or should a potential buyer share Summa’s focus on building purpose-driven organizations with a positive impact on the world? How can Summa maximize its impact, both through investment and voice?

Keywords: corporate purpose; ESG; ＂ESG (environmental, social, governance) performance; social impact; social enterprise; private equity; investment management; finance; capital markets; management practices; leadership; innovation; entrepreneurship; voice; Environmental Impact; value creation; Private Equity; Social Enterprise; Finance; Capital Markets; Management Practices and Processes; Innovation Leadership; Leadership; Innovation and Management; Entrepreneurship; Mission and Purpose; Value Creation; Financial Services Industry;

Citation:

Serafeim, George, and David Freiberg. "Summa Equity: Building Purpose-Driven Organizations." Harvard Business School Case 118-028, November 2017. (Revised July 2018.) View Details

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In 2017, JetBlue, the airline founded on the mission to “bring humanity back to air travel,” became one of the first companies to report performance according to the Sustainability Accounting Standards Board (SASB) standards and was first among airlines to adopt the recommendations of the Task Force for Climate-related Financial Disclosures. Despite operating as a smaller player in an industry dominated by few legacy competitors, JetBlue leadership saw themselves as a driver of industry progress. However, was JetBlue’s leadership “relevant sustainability leadership”? Moreover, how could developing metrics and improved performance on material sustainability issues be used as an instrument for change management? JetBlue wanted to achieve best-in-class performance on SASB metrics, as company officials believed sustainability was more than simply a risk mitigation tool. Was it? If so, how could JetBlue receive credit from investors, and competitors, for their sustainability leadership?

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Career Concerns of Banking Analysts

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