Does Individual Performance Affect Entrepreneurial Mobility? Empirical Evidence from the Financial Analysis Market

Our paper contributes to the studies on the relationship between workers' human capital and their decision to become self-employed as well as their probability to survive as entrepreneurs. Analysis from a panel data set of research analysts in investment banks over 1988-1996 reveals that star analysts are more likely than non-star analysts to become entrepreneurs. Furthermore, we find that ventures started by star analysts have a higher probability of survival than ventures established by non-star analysts. Extending traditional theories of entrepreneurship and labor mobility, our results also suggest that drivers of turnover vary by destination: (a) turnover to entrepreneurship and (b) other turnover. In contrast to turnover to entrepreneurship, star analysts are less likely to move to other firms than non-star analysts.

What Drives Sell-Side Analyst Compensation at High-Status Investment Banks?

We use proprietary data from a major investment bank to investigate factors associated with analysts' annual compensation. We find compensation to be positively related to "All-Star" recognition, investment-banking contributions, the size of analysts' portfolios, and whether an analyst is identified as a top stock picker by The Wall Street Journal. We find no evidence that compensation is related to earnings forecast accuracy. But consistent with prior studies, we find analyst turnover to be related to forecast accuracy, suggesting that analyst forecasting incentives are primarily termination based. Additional analyses indicate that "All-Star" recognition proxies for buy-side client votes on analyst research quality used to allocate commissions across banks and analysts. Taken as a whole, our evidence is consistent with analyst compensation being designed to reward actions that increase brokerage and investment-banking revenues. To assess the generality of our findings, we test the same relations using compensation data from a second high-status bank and obtain similar results

The Stock Selection and Performance of Buy-Side Analysts

Prior research on equity analysts focuses almost exclusively on those employed by sell-side investment banks and brokerage houses. Yet investment firms undertake their own buy-side research, and their analysts face different stock selection and recommendation incentives than their sell-side peers. We examine the selection and performance of stocks recommended by analysts at a large investment firm relative to those of sell-side analysts from mid-1997 to 2004. We find that the buy-side firm's analysts issue less optimistic recommendations for stocks with larger market capitalizations and lower return volatility than their sell-side peers, consistent with their facing fewer conflicts of interest and having a preference for liquid stocks. Tests with no controls for these effects indicate that annualized buy-side Strong Buy/Buy recommendations underperform those for sell-side peers by 5.9% using market-adjusted returns and by 3.8% using four-factor model abnormal returns. However, these findings are driven by differences in the stocks recommended and their market capitalization. After controlling for these selection effects, we find no difference in the performance of the buy- and sell-side analysts' Strong Buy/Buy recommendations

What Factors Drive Analyst Forecasts?

A firm's competitive environment, its strategic choices, and its internal capabilities are considered important determinants of its future performance. Yet there is little evidence on whether analysts' forecasts of firm performance actually reflect any of these factors and which are considered most important. We use survey data from 967 analysts ranking 837 companies to judge how their forecasts are related to evaluations of firms' industry competitiveness, strategic choices, and internal capabilities. Forecasts are generally associated with many of the factors that money managers rate as important in their assessments of analyst contributions, including industry growth and competitiveness, low-price strategy, strategy execution, top management quality, innovation, and performance-driven culture. We also find wide variation across variables for ratings consistency among analysts covering the same firm. On average, consistency is higher for sell-side than buy-side analysts, consistent with sell-side analysts facing greater incentives to herd

The Risky Business of Hiring Stars

An in-depth study of 1,052 star stock analysts who worked for 78 investment banks in the United States from 1988 to 1996 finds that when a company hires a star, the star’s performance plunges, there is a sharp decline in the functioning of the group or team she works with, and the company’s market value falls. Moreover, stars don’t stay with the organizations for long. For all those reasons, we conclude that companies cannot gain a competitive advantage by hiring stars from outside the business. Instead, they should focus on growing talent within the organization and retain the stars they develop

Talk, Inc.: how trusted leaders use conversation to power their organizations

Conversation-powered leadership How can leaders make their big or growing companies feel small again? How can they recapture the magic"the tight strategic alignment, the high level of employee engagementthat drove and animated their organization when it was a start-up? As more and more executives have discovered in recent years, the answer to this conundrum lies in the power of conversation. In Talk, Inc., Boris Groysberg and Michael Slind show how trusted and effective leaders are adapting the principles of face-to-face conversation in order to pursue a new form of organizational conversation. They explore the promise of conversation-powered leadershipfrom the time-tested practice of talking straight (and listening well) to the thoughtful adoption of social media technology. And they offer guidance on how to balance the benefits of open-ended talk with the realities of strategic execution. Drawing on the experience of leaders at diverse companies from around the world, Talk, Inc., offers provocative insights and user-friendly tips on how to make organizational culture more intimate, more interactive, more inclusive, and more intentionalin short, more conversational

Determinants of Gender Differences in Change in Pay among Job-Switching Executives

The authors investigate what determines differences in change in pay between men and women executives who move to new employers. Using proprietary data of 2,034 executive placements from a global search firm, the authors observe narrower pay differences between men and women after job moves. The unconditional gap shrinks from 21.5% in the prior employer to 15% in the new employer. After controlling for typical explanatory factors, the residual gap falls by almost 30%, from 8.5% at the prior employer to 6.1% in the new placement. This change reflects a relative increase in performance-based compensation for women and a lower level of unexplained pay inequality generally in external placements. Controlling for individual fixed effects, observed women have higher pay raises than do men. Finally, the authors find suggestive evidence that pay differences may also be moderated by differences in the supply and demand for women executives