For securities analysts, there might be more in a name than Shakespeare’s Juliet ever imagined.
According to new research, the earnings forecasts of securities analysts who share a first name with the CEO of a covered firm (”matched” analysts) are more accurate—especially when it is an unusual name—than forecasts of analysts whose names don’t match the CEO’s. The study was conducted by researchers at the University of California, Berkeley, and the University of California, Los Angeles.
The finding suggests that a chief executive officer is more likely to share private information with an analyst with whom that executive shares a first name, the researchers say.
The conclusions are consistent with psychology research that shows that individuals have a greater liking of and attraction to individuals with a first name similar to their own and a greater willingness to respond favorably to requests made by such individuals, says Brett Trueman, a professor of accounting at UCLA’s Anderson School of Management. Dr. Trueman co-wrote the paper with Omri Even-Tov, an assistant professor at the Haas School of Business at UC Berkeley, and Kanyuan Huang, a Ph.D. student in accounting at UCLA Anderson.
Hello, our name is…
The phenomenon is considered a manifestation of “implicit egotism,” whereby individuals express a preference for people, places and things that they unconsciously associate with themselves.
“Your first name is the most important word to you, so it really gets to the heart of who you are,” says Dr. Trueman.
Based on more than 190,000 forecasts, of which 1.4% featured a match between the first names of the analyst and the CEO, the researchers concluded that the accuracy of the forecasts in which there was a match was, on average, 4.9 percentage points greater than the accuracy of the other forecasts.
The findings don’t mean that companies are violating the Securities and Exchange Commission’s Regulation Fair Disclosure, or Reg FD, which prohibits them from selective disclosure of market-moving news, says Dr. Trueman. Reg FD doesn’t prohibit management from meeting privately with an analyst to discuss the firm’s business, and such a meeting may allow an analyst to complete a mosaic of information that is material to his or her forecast, Dr. Trueman says.
Such a meeting may also allow the analyst to observe a CEO’s nonverbal communication, which permits the analyst to make additional inferences about the firm’s progress, he says, noting that some analysts are trained to read body language.
The CEO’s tone and choice of words are important and can offer clues to a company’s outlook, says Dr. Even-Tov.
The positive effect of having a common first name was significantly higher among those analyst/CEO matches with less common first names, say the researchers, who referred to data from the Social Security Administration to determine whether a name is common. This is perhaps because it isn’t that unusual to share a common first name, they say. A John or David might not feel more affinity toward another John or David because they probably meet a lot of people with those names. A Bruce or Henry, on the other hand, won’t meet another Bruce or Henry as often, the researchers say.
Other factors in play?
Uri Simonsohn, a professor of behavioral science at Esade business school in Barcelona and co-director of the Penn Wharton Credibility Lab at the University of Pennsylvania, has challenged prior studies that claim to demonstrate implicit egotism, and says the conclusions made in this new research appear to be unwarranted. Dr. Simonsohn says that previous studies purported to show that decisions were driven by names when they were instead entirely driven by variables such as age and state of birth.
“The names parents give their children vary over time, location, socioeconomic status, etc. For example, most men named Justin were born in the late 1980s,” Dr. Simonsohn says. “To avoid confusing correlation with causation, when we compare the outcomes of people with different names, we must take into account all of those factors.”
The new research on analysts’ forecasts doesn’t take any of those factors into account, he says.
The researchers say their results remained intact when they recently added a control for the ages of the CEOs and analysts. They can’t rule out the possibility that the results are at least partly driven by other characteristics that correlate with a given name, they say, but that is the nature of empirical studies. While they don’t have enough information about the analysts to control for socioeconomic background, given the nature of the jobs, it is likely that the analysts and CEOs are in the upper or middle class, the researchers add.
Ms. Maxey is a writer in Union City, N.J. She can be reached at reports@wsj.com.
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