RFS Advance Access originally published online on May 16, 2007
Review of Financial Studies 2009 22(5):2087-2131; doi:10.1093/rfs/hhm024
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Financial Analysts' Performance: Sector Versus Country Specialization
University of Neuchâtel and BCV
Address correspondence to Frédéric Sonney, University of Neuchâtel, Pierre-à-Mazel, 7, CH–2000 Neuchâtel, Switzerland, or e-mail: frederic.sonney{at}unine.ch.
JEL Classification: G15, G24, M41
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Abstract |
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Brokerage houses normally structure their research activities along either country or sector lines. I investigate whether organizational structure affects the quality of financial analysts' earnings forecasts. Specifically, I compare the performance of country-specialized financial analysts with that of sector-specialized financial analysts. The former issue forecasts considerably more accurately than the latter. Country specialists benefit from an informational advantage over sector specialists. A superior knowledge of country-specific factors, as well as geographical proximity between analysts and the firms they cover, are significant determinants of this advantage.
This article has benefited from the helpful comments of Michel Dubois, René Stulz, Guido Bolliger, Laurent Barras, Fabien Couderc, Laurent Frésard and participants at the 32nd annual meeting of the European Finance Association (EFA, 2005) and at the annual meeting of the Financial Management Association (FMA, 2005). Financial support by the Swiss National Science Foundation (SNSF), grant No. 100012-105432/1, is also gratefully acknowledged. The SNSF is acting on a mandate issued by the Swiss Federal Government and promotes independent research.