Industry Sensitivity to External Forces and Firm-Level Disclosure

Abstract

This paper examines whether analysts, who are viewed as industry experts, have industry-level information advantage over managers. We argue that such an advantage is more likely to exist for firms that operate in industries that are characterized by more difficult and uncertain operating environments, especially due to higher sensitivity to external shocks. Using a proprietary database of forward looking, time varying, industry-level characteristics, we find that for firms in such industries analysts provide more accurate forecasts than managers. We further find that managers of firms in such industries provide fewer and less precise forecasts, and these results are more pronounced when analyst following and institutional ownership is high. Finally, the magnitude of analyst forecast revisions following management forecasts is smaller in such industries.