Industry Knowledge and School Tie Spillover

Abstract

Relative to analysts without school ties, analysts with ties make more accurate forecasts and more profitable recommendations on non-tied firms in the same industry, suggesting that analysts acquire industry information through school ties. We conduct various tests to assess the relative importance of firm-specific vs. industry information reflected in connected analysts’ forecasts and recommendations. After Regulation Fair Disclosure, firm managers shift from privately disclosing firm-specific information to industry information, which is responsible for connected analysts’ continued (albeit smaller) information advantage. These results suggest selective disclosure of industry information is a legal gray area that deserves further regulatory attention.