Learning by doing or catering: Firm-specific experience and analyst forecast accuracy

• Published in: Emerging markets review 2024-06, Vol.60, p.101133, Article 101133
• Main Authors: Ji, Xu, Wu, Shanhui, Dong, Yan, Yang, Xiaoqi
• Format: Article
• Language: English
• Subjects: Analyst forecast accuracy; Catering; Firm-specific experience; Learning by doing; SOEs
• ISSN: 1566-0141; 1873-6173
• DOI: 10.1016/j.ememar.2024.101133

This article explores catering behavior among security analysts by examining how firm-specific experience impacts forecast accuracy. Using analyst forecasts on listed companies in China from 2014 to 2018, we find that firm-specific experience significantly reduces analyst forecast accuracy, which indicates the existence of catering behavior. Heterogeneity analysis reveals that catering behavior primarily exists for analysts employed by large brokerage firms or who issue forecasts for large companies. Further analysis shows that catering behavior is more prevalent when analysts make forecasts for SOEs. These findings suggest multi-faced implications of firm-specific experience and call for better regulations on refraining analysts' catering behavior. •Firm-specific experience increases analyst forecast accuracy by “learning by doing”.•Firm-specific experience reduces forecast accuracy when analysts are catering.•Analysts in large brokers, covering large listed firms or SOEs tend to cater.