Analyst teams and the assembly bonus

Abstract

PurposeAnalyst team forecasts are the most frequent form of earnings expectations available to investors, with teams issuing more than 70% of research reports in 2016. Prior research provides differing evidence on whether analyst teams issue higher or lower quality forecasts than individual analysts.Design/methodology/approachI use a sample of more than 17,000 hand-collected analyst reports representing 7,586 forecasts from 89 companies in three industries from 1994–2005.FindingsI document that analyst teams benefit from an assembly bonus, and issue more accurate forecasts than individual analysts only in time periods when teams would be expected to benefit from an assembly bonus.Practical implicationsI outline multiple factors within the control of brokerage houses that impact teams’ relative forecast quality, such as the number of members in the team, how long the team has worked as a unit and the costliness of integrating information when forming a forecast.Originality/valueGiven the preponderance of analyst teams and the strength of market reaction to their forecasts, it is valuable to document factors both in the past and present likely to affect analyst teams’ relative forecast accuracy.