Does Forecast Accuracy Matter to Security Analysts?

We investigate if earnings forecast accuracy matters to security analysts by examining its association with analyst turnover. Controlling for firm- and time-period effects, forecast horizon and industry forecasting experience, we find that an analyst is more likely to turn over if his forecast accuracy is lower than his peers. We find no association between an analyst's probability of turnover and his absolute forecast accuracy. We also investigate another observable measure of the analyst's performance, the profitability of his stock recommendations. There is no statistical relation between the absolute or relative profitability of an analyst's stock recommendations and his probability of turnover. We interpret our findings as indicating that forecast accuracy is important to analysts.