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;

Format: Print SSRNFind at Harvard

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.

About the Author

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George Serafeim
Professor of Business Administration
Accounting and Management

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