Analysts’ Industry Expertise and Synchronicity

This study examines the relation between analysts’ industry knowledge and their earnings forecast accuracy. Using analysts’ promulgation of industry recommendations in their firm research report as a proxy for their industry knowledge or expertise, we find that analysts with industry knowledge predict earnings more accurately than those without such knowledge. However, the beneficial effect of industry knowledge on earnings forecast accuracy would not be uniform across firms. We conjecture that industry knowledge will be more relevant for firms whose performance is more synchronous with that of the industry. Consistent with the prediction, analysts with industry knowledge exhibit better earnings forecasting performance when they cover firms with high synchronicity with the industry. In contrast, we find no beneficial effect for firms with low synchronicity with the industry. We further find that industry knowledge spills over to other firms in the same industry, that is, to firms in the same industry for which analysts do not provide industry recommendations along with earnings forecasts.