Brokerage Industry Self-Regulation : The Case of Analysts' Background Disclosures

We evaluate an industry disclosure initiative designed to inform investors, the practice of providing information regarding investment professionals' backgrounds. Implicit in the motivation for this initiative is the presumed relevance of background information to investors seeking investment professionals' guidance. We find that analysts with disclosure incidents forecast less accurately than a matched sample of analysts without such disclosures, and that the market views disclosed analysts' earnings forecasts as less credible than those of the matched sample. Our evidence is consistent with disclosures signaling a persistent analyst characteristic. We conclude that analyst backgrounds are informative regarding both the accuracy and credibility of their earnings forecasts, and that investors who are uninformed as to an analyst's background can benefit from these disclosures