The Value Of Reading People: Evidence From Financial Analysts
Following classical attention literature that individuals’ selection of communication content in their written outputs reflects their selective attention toward people, we measure analysts’ innate trait of person orientation by quantifying their tendency to refer to individuals in their research reports. We find person-oriented analysts to outperform non-person-orientated analysts regarding All-Star status, earnings forecasts accuracy, and forecast error consistency. We further find that managers are more likely to grant Q&A participation to person-oriented analysts who tend to obtain people-related information instead of financial information during conference calls. More interestingly, the long-term returns (i.e., one-month and six-month returns) generated by person-oriented analysts’ recommendation-based portfolios are greater at 41-53 basis points than by non-person-oriented analysts’. However, there is no such difference for the short-term returns. Likewise, our test of market reaction to forecast revisions suggests that investors do not immediately recognize person-oriented analysts’ superior quantified research outputs. Our findings suggest that person-oriented analysts can effectively process people-related information into quantified research outputs.