A Star is Born: Star Analyst Voting and Analyst Research

Abstract

Being a star analyst increases an analyst’s compensation, status, and labor market mobility. In this paper, we examine how analysts’ incentives to win votes in star analyst voting affect their research outputs. Using proprietary and detailed voting data from China, we document two primary findings. First, we find that analysts exert higher level of effort in researching on the firms held by the voting funds; they issue earnings forecasts more frequently, write longer research reports, and are more likely to accompany fund managers for site visits. Second, while the incentives to win votes have a positive impact on forecast accuracy, they induce analysts to issue more optimistic stock recommendations for the firms held by the voting funds. The results are more pronounced when the portfolio weight of the firm in voting funds’ holdings and the voting weight of those funds are higher. Collectively these findings shed light on what analysts do to win favorable votes from mutual funds.