Does Star Analysts’ Departure Trigger the Brokerage's Internal Competition?

Abstract

This paper examines whether the departure of star analysts stimulates the internal competition and motivates non-star analysts who are employed by the previous brokerages to issue more accurate forecasts. We find that the departure of star analysts motivates non-star analysts to provide more accurate forecasts, and this incentive effect has a nature of long-term effect. Through mechanism analysis, we also find that the departure of star analysts hurts brokerages’ enthusiasm to cultivate star analysts, which further results in the vacancy of the star analyst in those brokerages. This vacancy plays an incentive role for non-star analysts. Moreover, the departure behavior motivates to produce accurate forecasts by hard working. In addition, we examine whether the departure’s incentive effect can be affected by the conflict of interest. The results show that non-star analysts who issue optimistic forecasts before the departure of star analysts are more likely to issue more accurate forecast reports after the departure of star analysts, which verifies the conflict of interest hypothesis. Finally, through the heterogeneity analysis, we find that the incentive effect on the non-star analysts is more significant when the number of star analysts in the previous employer is smaller, institutional investors hold more shares, and the market value of the companies is larger.