The Boss Knows Best: Directors of Research and Subordinate Analysts. (5th November 2018)

• Record Type: Journal Article
• Authors: Bradley, Daniel; Gokkaya, Sinan; Liu, Xi
• Is Part Of: Journal of financial and quantitative analysis. Volume 54:Number 3(2019)
• Page Start: 1403
• Page End: 1446
• Publication Date: 2018-11-05
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109018001448
• Languages: English
• ISSNs: 0022-1090

Abstract

Abstract : Research departments are managed by directors of research (DORs). Subordinate analysts working for higher-quality DORs provide superior earnings forecasts that elicit stronger market reactions, provide better investment recommendations, and have better career outcomes. For the broker, higher-quality DORs drive more trading commissions. Economically, analysts benefit the most from DOR–analyst industry alignment resulting from DORs' former analyst experience. We provide several tests to mitigate endogeneity concerns and explore various mechanisms to explain these results. Overall, our article identifies a unique channel whereby the industry-specific and general human capital of top management filters through to individual subordinates and consequently improves organizational performance.