Key takeaways
- Analysts' political donations predict their forecasting behavior
- Republican-leaning analysts are more optimistic about firms with Republican executives
- Democratic-leaning analysts show the reverse pattern
- Political ideology influences professional judgment
- Even sophisticated financial professionals are not immune to partisan bias
The research question
Financial analysts are supposed to be objective. Their forecasts should reflect company fundamentals, not personal political views. But do political beliefs leak into professional judgments?
We match analysts' political contributions (a revealed preference for political ideology) to their earnings forecasts and stock recommendations.
What we found
Political ideology predicts analyst behavior in measurable ways. Analysts who donate to Republican candidates are more optimistic about firms led by Republican executives. The reverse is true for Democratic analysts.
This in-group favoritism extends to stock recommendations. Analysts are more likely to issue buy recommendations for firms led by executives who share their political orientation.
Implications
Objectivity is harder to achieve than we might assume. Even professionals trained to analyze numbers are influenced by their political worldview. Investors should consider the potential for partisan bias in the research they consume.
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