Does Bold Forecast After Job Change Improve Forecast Accuracy? Evidence From Korean Sell-Side Analysts

Abstract

This paper investigates how incentives generated by intrafirm tournaments affect the informativeness of bold forecasts issued by sell-side analysts who have recently switched employers. Prior literature suggests that bold forecasts may lose accuracy when they are influenced by tournament-induced incentives. Extending this literature, I find that bold forecasts from transitioning analysts tend to result in decreased forecast accuracy. This negative effect is mitigated when analysts are less concerned about their disadvantages in the new intrafirm tournament—specifically, when they are more experienced, more competent, or have moved to more prosperous brokerage houses. These findings suggest that bold forecasts by transitioning analysts are partly influenced by intrafirm tournament-induced risk-taking, which can deteriorate performance quality.