Measuring the Career Concerns of Security Analysts: Job Separations, Stock Coverage Assignments and Brokerage House Status

This paper examines the career concerns of security analysts using long histories of their earnings forecasts, job separations and stock coverage assignments. Our findings include the following. Relatively good (accurate) past forecast performance increases the probability that an analyst moves from a low status to a high status (large, prestigious) brokerage house, while relatively poor past forecast performance leads to movements down the brokerage house hierarchy. High status brokerage houses are more likely to discharge an analyst for poor past forecast performance than other houses. In addition, analysts with poor past forecast performances but who do not change employers are more likely to be removed from following stocks with large market capitalization or significant analyst following. This effect is also more pronounced for analysts who work for high status brokerage houses. These findings suggest that the labor market for security analysts provides important implicit incentives for analysts to produce good forecast track records. ______________________________ We thank I/B/E/S for making their data available for academic use. We also thank Ezra Zuckerman for his help in collecting the Institutional Investor rankings of brokerage houses. This paper is a highly revised draft of a paper previously circulated under the title of “Birds of an Average Feather Flock Together: Performance, Reputation and Analyst Coverage.” Please address inquiries to Harrison Hong, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 943055015, phone 650-725-6939, fax 650-725-9932 or email [email protected].