Analysts’ Cultural Attitudes to Time Orientation

Abstract

We study how analysts’ cultural attitudes to time orientation affect their production of long-term earnings forecasts, the profitability of their stock recommendations, and managerial myopia for the firms they cover. We find that analysts from a long-term oriented culture produce more long-term earnings forecasts, issue more timely long-term forecasts and more profitable stock recommendations. These results are more pronounced among firms with more long-term investments, for smaller firms, and during periods of higher economic uncertainty. Exploring the quasi-natural experiments of brokerage houses’ mergers and closures, we find a positive and plausibly causal effect of the coverage by long-term oriented analysts on firm innovation. Contrary to extant research finding that analysts’ coverage in general fosters managerial myopia, our paper shows that the coverage of long-term oriented analysts ameliorates managerial myopia.