To Herd or Not to Herd: Do Intangible Assets Affect the Behavior of Financial Analyst Recommendations?

Abstract

The extent to which financial analysts provide “herd” rather than “bold” (or anti-herd) earnings forecasts has important implications for market efficiency. Identifying any contributing factor(s) for financial analyst herding behavior can lead to policies to help reduce such harmful conduct. Our 2 proxies for intangible asset intensity are found to have a differential impact on analyst herding behavior. More specifically, increases in firm-specific reported balance sheet intangible assets (level of patents granted) are associated with heightened (reduced) herding behavior. Our findings highlight the need for regulatory reforms such as more transparent disclosure, and standardized accounting treatment to better capture a firm’s investment in intangible assets in their financial statements.