Do Firms Contribute to the Variation in Employees' Performance in Knowledge-Intensive Industries? The Case of Equity Research

Employee knowledge is a critical contributor to the quality of output in knowledge-intensive industries. A debated but unresolved question is whether the resources provided by firms in knowledge-intensive industries contribute to the observed variation in employees' performance across firms. The answer to this question is unclear because the benefits from the resources that firms provide may be competed away or transferred to the employees when they leave the firm. I provide evidence on this question by analyzing the equity research industry. Specifically, I examine the change in forecast accuracy of sell-side analysts who move from one brokerage house to another while maintaining coverage of the same firms. This setting allows me to isolate the brokerage house effect on forecast accuracy since the analyst and task are held constant. I find that when an analyst moves to a brokerage house with more (less) resources, analyst forecast accuracy improves (deteriorates). These findings suggest that firms in at least one industry are able to acquire a competitive advantage and generate value by providing their employees with useful and unique resources that cannot be easily transferred when those employees move across firms. I further explore whether my results are driven by the endogeneity of analyst turnover by examining a subsample of turnovers that result from brokerage house closures. My results hold in this subsample as well.