Do star analysts know more firm-specific information? Evidence from China

• Published in: Journal of banking & finance 2013-01, Vol.37 (1), p.89-102
• Main Authors: Xu, Nianhang, Chan, Kam C., Jiang, Xuanyu, Yi, Zhihong
• Format: Article
• Language: English
• Subjects: China; Earnings forecasting; Economic analysis; Emerging markets; Evidence; Forecast accuracy; Human capital; Information management; Information production; Production; Rates of return; Star analyst; Stock return synchronicity; Stock returns; Studies
• ISSN: 0378-4266; 1872-6372
• DOI: 10.1016/j.jbankfin.2012.08.014

► We extend the literature by studying the role of star vis-à-vis non-star analysts. ► Analyst coverage and stock return synchronicity in China is positively correlated. ► Star analysts coverage actually decreases stock return synchronicity. ► The firm-specific human capital in star analysts explains the findings. Using a unique database in China, we extend the literature to further distinguish the information production role of star vs. non-star analysts. We confirm the general conclusion of a positive association between analyst coverage and stock return synchronicity measured by a firm’s R2 in China. The findings from star analysts, however, show that star analyst coverage actually decreases stock return synchronicity. We contend that the firm-specific human capital in star analysts helps the analysts overcome the challenges of information production in an emerging market. The superior firm-specific human capital argument of star analysts is further supported by the negative association of star analysts’ firm-specific experiences and stock return synchronicity. Our conclusions are robust to different specifications of star analyst presence and different definitions of analysts’ firm-specific experiences. We also find that star analysts exhibit a more accurate earnings forecast than non-star analysts.