Boosting the accuracy of earnings forecasts
“What’s in a name?” Shakespeare asked in Romeo and Juliet. A lot, it turns out, if you’re a Wall Street analyst. Asst. Prof. Omri Even-Tov and colleagues discovered that security analysts who share a first name with a CEO will make significantly more accurate earnings forecasts for that company than analysts without the same name. The less common the shared name, the greater the accuracy.
The findings are consistent with other psychology studies showing that people respond more favorably to and have an affinity for individuals with the same first name.
Even-Tov and his colleagues conjecture that a CEO will more willingly share private information with an analyst of the same name, thus leading to increased forecast accuracy.
They looked at 26 years’ worth of earnings forecasts, ruling out the possibility of ethnic and gender ties affecting forecast accuracy, and even examined the effect of CEO turnover. When leadership changed, the forecast accuracy of analysts who no longer shared the CEO’s first name decreased compared to analysts who never shared a name, while the accuracy of analysts who suddenly did share the CEO’s name increased.