Secuirty Analysts' Career Concerns and Herding of Earnings Forecasts

Several theories of reputation and herding (see, e.g., Scharfstein and Stein (1990), Zwiebel (1995), and Prendergast and Stole (1996) predict that herding among agents should vary with career concerns. Our goal in this paper is to test for this link in the labor market for security analysts by looking at the relationship between an analyst’s job tenure (a proxy for career concerns) and various measures of earnings forecast performance. We establish the following key results. (1) Older analysts deviate more from consensus forecasts than their younger counterparts. (2) They are more likely to produce forecasts before younger onces, and (3) they revise their forecasts less frequently than younger analysts. We view this evidence as consistent with the conclusion that younger security analysts are more likely to herd with the consensus. These findings generally support multi-agent models of reputation in which career concerns lead to herding.