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The Boss Knows Best: Directors of Research and Subordinate Analysts

Published online by Cambridge University Press:  05 November 2018

Daniel Bradley ,
Sinan Gokkaya Open the ORCID record for Sinan Gokkaya [Opens in a new window]  and
Xi Liu Open the ORCID record for Xi Liu [Opens in a new window]
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Abstract

Research departments are managed by directors of research (DORs). Subordinate analysts working for higher-quality DORs provide superior earnings forecasts that elicit stronger market reactions, provide better investment recommendations, and have better career outcomes. For the broker, higher-quality DORs drive more trading commissions. Economically, analysts benefit the most from DOR–analyst industry alignment resulting from DORs’ former analyst experience. We provide several tests to mitigate endogeneity concerns and explore various mechanisms to explain these results. Overall, our article identifies a unique channel whereby the industry-specific and general human capital of top management filters through to individual subordinates and consequently improves organizational performance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 3 , June 2019 , pp. 1403 - 1446
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank Justin Birru, Lauren Cohen, Jennifer Conrad (the editor), Michael Cook, Laura Field, Andrew Fodor, David Haushalter, Paul Irvine, Russell Jame, Tomas Jandik, Wayne Lee, Leonardo Madureira (the referee), Alexey Malakhov, Peter Park, Andy Puckett, Sam Radnor, Jay Ritter, Thomas Shohfi, Geoff Warren, Jared Williams, and seminar participants at Florida State University, Pennsylvania State University, St. John’s University, the University of Arkansas, Ohio University, Miami University, the 2016 University of Tennessee Smokey Mountain Finance Conference, the 2015 World Finance Conference, the 2015 Eastern Finance Association Meeting, and the 2016 Financial Management Association Meeting for many helpful comments. We are responsible for all errors.

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