Analyst Herding Behavior and Analyst Affiliation: Evidence from Business Groups

Abstract

This paper examines analysts herding behavior when there are two groups of analysts where one group has affiliation with the subject firm and one group does not. We found that the unaffiliated analysts issue the forecasts herding towards their prior affiliated analysts' forecasts. The unaffiliated analysts' herding with affiliated analysts is intensified by positive information delivered by affiliated analysts. In addition, the herding with affiliated analysts results from unaffiliated analysts' strategic actions to maximize forecast accuracy. Overall, when significant information asymmetry exists, the findings suggest that unaffiliated analysts use affiliated analysts' forecasts as a primary information source to forecast earnings.