Political Contributions and Analyst Behavior

Ideology matters: How political conservatism shapes financial forecasts 

Key takeaways:

• Analysts who donate solely to the Republican Party tend to make more cautious and gradual changes to their earnings forecasts and stock recommendations, reflecting a conservative forecasting style.

• Despite their conservative approach, these analysts produce higher quality research that is valued by their employers, institutional investors, and the financial media.

• Surprisingly, the stock market reacts less strongly to forecast and recommendation revisions made by these conservative analysts, particularly among firms with a higher proportion of less sophisticated investors.

• Analysts' personal traits, revealed through their political donations, have a significant impact on their professional behavior and the way financial markets respond to their research, even after accounting for various firm and analyst characteristics.