How does reputational capital affect professional behavior? Evidence from analysts who become all-stars

Abstract

We examine whether increased reputational capital affects the behavior of capital market professionals using the setting of sell-side equity analysts and annual all-star rankings. We use a novel dataset, employ a quasi-experimental design and find that newly-ranked all-star analysts become more optimistic, bold, and frequent in their forecasts, but are less accurate; they also add more stocks to their coverage universe and generate higher market reactions from their forecast revisions. Our results are consistent with the notion that increased reputational capital emboldens professionals to take bolder actions to exert their market influence.