The Roles of Task-Specific Experience and Innate Ability in Understanding Analyst Performance

Abstract

There is considerable debate in the literature about what analyst experience measures and whether analysts learn from their prior experiences. Extant research has argued that once an analyst's innate ability is considered, the general and firm-specific experiences of an analyst are not relevant to understanding his/her forecasting performance. This prior research posits that only the highest-ability analysts survive at the job and, as a result, performance is not a function of analysts learning from their experiences. Drawing on psychology-based research, we argue that previous measures of experience need to be expanded to not only include general and firm-specific experience, but also task-specific experience. We empirically test our ideas within the context of firms experiencing restructuring charges. Our results reveal that analysts' performance (i.e., forecast accuracy) around current restructurings is associated with both their innate ability and their task-specific restructuring experience. In addition, we find that forecast accuracy and task-specific experience are most highly correlated for those analysts who survive the longest and, thus, presumably have the greatest innate abilities.