Hierarchy of Analyst Teams: Implications for Productivity

Title: Hierarchy of Analyst Teams: Implications for Productivity

Abstract: I examine the effect of hierarchy on productivity. Guided by the theory of “knowledge-based” hierarchy, I predict a trade-off between knowledge acquisition costs and coordination costs. I test this prediction using a sample of about 550,000 sell-side forecasts (reports) from 2005 to 2022, measuring hierarchy based on analysts’ registrations with FINRA. Exploiting within-team variation in hierarchy due to licensing exam passing, I find that hierarchy matters for analyst teams’ productivity (i.e., forecast timeliness and accuracy). Further, I provide evidence that hierarchy is not standardized within brokers suggesting that brokers optimize team design based on internal preferences for timely versus accurate forecasts. Overall, the results enhance the understanding of the organization design of teams.