Do Analyst Teams Produce Higher Quality Forecasts? Evidence from Analyst Reports
In 2005, analyst teams issued nearly three-fourths of analyst reports for a sample of 89 large, heavily followed firms. Over a twelve-year period, 86 of those firms had more reports issued by analyst teams than by solo analysts. Despite significant regulatory and academic interest and extensive literature demonstrating the impact of teamwork in general, there is almost no research concerning the effect of teamwork on analyst forecasts. With a hand-collected sample of more than 17,000 analyst reports, I show that forecasts issued by analyst teams systematically differ from the forecasts of individual analysts in ways predicted by team literature. I demonstrate thatprior to the year 2000 analyst teams issue forecasts that are less accurate than forecasts issued by solo analysts. Starting in the year 2000, brokerage closures and Regulation Fair Disclosure appeared to cause a shift in the relative benefit of analyst teamwork. In addition, I find that teams issue forecasts that are less pessimistically biased but not less optimistically biased. Lastly, the benefits of teamwork vary over the life of the team, following a u-shape pattern. My results should be of interest to regulators as they consider factors that impact absolute analyst forecast error and bias.