Analysts’ Use of Industry-level and Firm-Specific Information : Implications for Information Production

This paper studies how security analysts use industry-level and firm-specific information in issuing firms' earnings forecasts. Analysts who use more (less) industry-level (firm-specific) information have less available resources and incentives to allocate effort towards costly firm-specific research. Specifically, analysts' use of industry-level information increases with portfolio complexity and decreases with access to private information, reputational incentives, and the potential to generate brokerage business. Analysts who use more industry-level information issue less accurate, but more frequent and timely, forecasts with lower stock price impact. Together, our results suggest a trade-off between quality and quantity of information production when analysts use more (less) industry-level (firm-specific) information