Do Financial Analysts Play a Complementary or Substitutive Role in the Corporate Information Environment? Evidence from Organised Labour

This paper explores the primary role of financial analysts in the context of unionised firms, where investors have greater information demand. Previous literature suggests that labour unions create substantial uncertainty in firms and undermine the information environment, while another strand of literature argues that analysts devote more effort to generating valuable information through original research in the case of heightened uncertainty or information asymmetry. To date, it is unclear whether financial analysts, as professional information intermediaries, are affected by organised labour. Using a large U.S. sample over the period of 1983-2015, we find that the labour unionisation rate is associated with lower forecast accuracy and higher forecast dispersion, suggesting that financial analysts predominantly play a “complementary role” rather than a “substitutive role” when firms are facing significant uncertainty in human capital. Overall, our study has important implications for managers, financial analysts and regulators, by highlighting the value and hence the necessity of non-financial information disclosure specific to a key intangible asset of firms, i.e., their employees.