Tournaments of financial analysts
Date of Issue2013
College of Business (Nanyang Business School)
We argue that financial analysts can be viewed as participants of two tournaments (the “All-star” tournament and the intrafirm tournament) and examine whether analysts are incentivized by the tournament compensation structure. Using data from 1991 to 2007, we find that interim losers are more likely to increase the boldness of their forecasts in the remainder of the tournament period than interim winners. This finding survives several robustness checks and is more pronounced when the interim assessment date is closer to the end of the tournament period, when analysts are inexperienced, and when the market activity is high. In addition, we show that interim losers’ changes in boldness are less informative than interim winners’. Collectively, our findings suggest that viewing financial analysts as participants of tournaments provides a useful framework for understanding analysts’ behavior.
Review of accounting studies
© 2013 Springer Verlag. This is the author created version of a work that has been peer reviewed and accepted for publication by Review of Accounting Studies, Springer Verlag. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document. The published version is available at: [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2226290].