Analyst following along the supply chain
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We document that the likelihood of an analyst following a supplier–customer firm pair increases with the strength of the economic ties along the supply chain, as measured by the percentage of the supplier’s sales to the customer. Analysts who follow a covered firm’s customer provide more accurate earnings forecasts for the supplier firm than analysts who do not. While both types of analysts respond to and incorporate the earnings news from the customer firm into their revisions of the supplier’s earnings forecasts, supplier–customer analysts exhibit a larger improvement in their forecast accuracy for the supplier subsequent to the customer’s earnings announcements, when compared to other analysts. Overall, the evidence suggests that supplier–customer analysts benefit from the informational complementarities along the supply chain and improve their forecast accuracy as a result.
KeywordsSupply chain Information transfers Analyst following Forecast revisions Forecast accuracy Customer momentum
JEL ClassificationD80 G14 M41
We thank Joy Begley, Ling Cen, Sandra Chamberlain, Woo-Jin Chang, Sung Gon Chung, Gilles Hilary, Sharon Hudson, Artur Hugon, Peter Kennedy, Stan Markov, Michal Matejka, Steve Monahan, Suresh Radhakrishnan, Sundaresh Ramnath, Gordon Richardson, Tjomme Rusticus, Ram Venkataraman, Peter Wysocki, two anonymous reviewers, and workshop participants at the 10th Anniversary London Business School Accounting Symposium, the 7th Tel Aviv International Conference in Accounting, the IX International Accounting Research Symposium at Universidad Autónoma de Madrid, Arizona State University, City University of Hong Kong, Hong Kong Polytechnic University, INSEAD, Singapore Management University, University of British Columbia, University of Miami, and University of Toronto for their helpful comments and suggestions. Guan and Zhang acknowledge research start-up grants from the City University of Hong Kong and their research assistant Sophie Zhou. Wong appreciates financial support from the CMA Professorship in Accounting and the Social Sciences and Humanities Research Council of Canada. This project was completed while Wong was on faculty at INSEAD and on unpaid leave of absence from the University of Toronto.
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