Effects of Conformity to and Deviation from the Crowd:Reputation in the Context of Equity Analysts

Despite the importance of building and maintaining reputations, relatively little research has been devoted to understanding how conformity to or deviation from one’s peers’ actions might affect one’s reputation. We explore that question in the context of a certification contest—All-Star designation among sell-side equity analysts. In this study, we consider whether standing out from the crowd in terms of the boldness of earnings estimates will lead to All-Star status, even after controlling for the analyst’s accuracy in making estimates. We also build on the idea that reputation is somewhat inertial, and therefore explore how much prior certification as an All-Star leads to subsequent certification, again even after controlling for the analyst’s accuracy. We present and test theory about how prior certification will make it less necessary for the analyst to stand out from the crowd in order to achieve subsequent certification. Further, we build and test arguments about how boldness of earnings estimates might differ between analysts who have achieved subsequent All-Star certification and those who do not. We show how theory leads to alternative hypotheses. Our results suggest that classification as an All-Star analysts has a positive relationship with subsequent boldness in forecasting. By focusing on the acts of deviating from and conforming to the crowd we extend research on how reputations are created and maintained.