Information Sharing and Spillovers: Evidence from Financial Analysts

Abstract

We study how information sharing within an organization affects individual performance. We look at situations in which the same analyst, while working at the same broker, covers multiple mergers and acquisitions (M&As), in particular the acquirer prior to the M&A and the merged firm thereafter. We find that earnings forecasts for the merged firm are significantly more accurate when the analyst has a colleague (working at the same broker) covering the target prior to the M&A. This holds particularly true if acquirer- and target-analysts reside in the same locale, if they are part of a smaller team, and if the target-analyst is of higher quality. Our findings highlight the importance of information spillovers on individual performance in knowledge-based industries.

Keywords: Information Spillovers, Knowledge-based Industries, Analyst Performance

JEL Classification: G20, J23, J24, J31, J62, L23