Does Product Market Competition Influence Analyst Coverage and Analyst Career Success?

Abstract

We use information from product descriptions in firm 10-Ks to analyze whether product market competition influences analysts’ decisions to cover firms, the accuracy and consistency of their earnings reports and their likelihood of obtaining Analyst All-Star status. We find that a firm’s analyst coverage and analyst forecast accuracy and consistency increase with product market competition measured by product similarity. Analyst decisions to cover new firms or drop firms from the firms that they cover are also related to a firm’s competition relation with the other firms in their coverage portfolios. We also show that analysts whose portfolios comprise firms with greater product competition are more likely to obtain Analyst All-Star status.