When Do Associate Analysts Matter?

Abstract

Although extant literature investigates the role of sell-side equity analysts in capital markets, most studies do not consider that sell-side equity analysts often work in hierarchical teams. Lead analysts manage a team of associate and junior analysts who participate in the team’s tasks. Building on the delegation theory in the management literature, we hypothesize and find a division of labor between lead and associate analysts, where lead analysts are more likely to delegate tasks (1) that are less significant, (2) that are simpler, (3) when the workload of the lead analyst increases, and (4) when the associate analyst is more competent. Our results further suggest that associate analysts play a significant role in forecasting. By contrast, lead analysts are the main contributors to the qualitative aspects of analyst reports and are more likely to participate in earnings conference calls. Overall, our study documents the significant role of associate analysts in forecasting and the division of labor between lead and associate analysts. This paper was accepted by Brian Bushee, accounting.