Building a network of strong relationships is often promoted as a fundamental value for achieving success in business. Yet social pressures such as career advancement and maintaining one’s status within a professional network can impact the ways in which professionals communicate with their clients. Understanding how and why financial analysts judge information and deliver their recommendations as they do has been a “black box” in financial research.

Lawrence Brown, Seymour Wolfbein Distinguished Professor of Accounting at the Fox School, and his co-authors unlock this “black box,” shedding light on the pressures that affect the communication of financial analysts. For their 2015 paper titled “Inside the ‘Black Box’ of Sell-Side Financial Analysts,” the American Accounting Association (AAA) awarded Brown and his colleagues the 2021 Distinguished Contributions to Accounting Literature Award.  

Analysts’ stock recommendations and earnings forecasts are subjective by nature. The researchers considered the ways in which personal desires for achieving greater professional status and career advancement influences how analysts value the input of colleagues and managers, possibly resulting in recommendations and forecasts that are not supported by the analysts’ own research. 

The team combined empirical data with surveys and interviews, producing qualitative research for a field that is often driven by quantitative research. 

“What we did in this paper was use a triangulation approach to look at inferences that have been made in the past based on empirical research,” says Brown. “With surveys and interviews, we were able to learn certain things that you couldn’t possibly learn from the empirical data on its own.”   

The paper was co-authored with Professors Andrew C. Call, Michael B. Clement and Nathan Y. Sharp. The input from both practitioners and academics struck a unique balance of perspectives for this project. The paper’s findings are relevant to investors, managers, analysts and academic researchers.   

“My goal is to communicate not just with academics but also with practitioners,” Brown says. “If I was doing something that wasn’t of interest to practitioners, I wouldn’t feel nearly as satisfied.”

Brown and his colleagues received the award at the 2021 AAA Annual Meeting on Aug. 3 in the form of unique glass art pieces and a monetary prize.

Despite nearing retirement, Brown will teach at the Fox School in the fall and serve on a doctoral student’s committee. When asked about his plans to continue publishing work after retiring, a smile emerged.

“Never say never,” says Brown.