We examine how increased competition stemming from an innovation in financial technology influences sell-side analyst research quality. We find that firms added to Estimize, an open platform that crowdsources short-term earnings forecasts, experience a pervasive and substantial reduction in consensus bias and a limited increase in consensus accuracy relative to matched control firms. Long-term forecasts and investment recommendations remain similarly biased, alleviating the concern that the documented reduction in bias is a response to broad economic forces. At the individual analyst level, we find that bias reduction is more pronounced among close-to-management analysts; and that more biased analysts respond by reducing their coverage of Estimize firms. The collective evidence suggests that competition from Estimize improves sell-side research quality by discouraging strategic bias.
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Research Article| September 02 2021
Can FinTech competition improve sell-side research quality?
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Russell Jame, Stanimir Markov, Michael Wolfe; Can FinTech competition improve sell-side research quality?. The Accounting Review 2021; doi: https://doi.org/10.2308/TAR-2019-0266
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