Analyst Career Concerns, Effort Allocation, and Firms’ Information Environment

Abstract

Analysts strategically allocate more effort to portfolio firms that are relatively more important to their careers. Thus, the other firms the analysts cover indirectly affect a firm’s information environment. Controlling for analyst and firm characteristics, we find that an analyst makes more accurate, frequent, and informative earnings forecasts and recommendations for firms ranked higher within her portfolio based on proxies for importance to institutions. A firm’s relative rank widely varies across analysts, but its information environment improves when a larger proportion of analysts consider it to be relatively important. Analysts experience more favorable career outcomes when strategically allocating their efforts. Received August 23, 2017; editorial decision June 27, 2018 by Editor Lauren Cohen. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.