Gender Gap in Equity Research


New York-A recent academic study of gender differences in equity analysts found that female analysts’ earnings forecasts to be less accurate than their male counterparts but that women are more likely to outperform in the Institutional Investor rankings.  The study, published last month by finance professors at Emory’s Goizueta Business School, examines equity analysts for evidence of gender discrimination.  While we question some the assumptions in the study, we find its conclusion interesting.

Fewer Female Analysts

The study, which focused on sell side analysts at investment banks and brokerages, cites a declining proportion of female analysts-from 16% in 1995 to 14% in 2005 and wonders whether this is evidence of discrimination.  The study ignores the radical changes in the sell side analyst’s job during this period, as compensation declined from its 2000 highs and compliance pressures increased.  Too bad the study didn’t include buy side analysts and independents, because perhaps women have chosen to move from the sell-side to the buy side or go independent.  Dana Telsey, a highly ranked retail analyst who left Bear Stearns last year to set up her own research firm, is one example of such a move.

The study finds that the proportion of women varies by industry sector.  Women have their highest representation in consumer staples (22.5%) and consumer discretionary (18%) with lowest in energy and materials (both 12%).   The bulge firms have a higher representation of women (nearly 17%) than smaller sell-side firms (14%).  On average, female sell-side analysts cover fewer companies (nine) than males (ten) and have a slightly less optimistic bias than their male counterparts.

Job Performance

The study tries to measure analyst job performance to find evidence of job discrimination.  It focuses on earnings accuracy, and finds that female analysts’ earning forecasts are on average less accurate than male analysts.  We would take issue with making earnings accuracy a centerpiece of performance measurement.  Most sell-side firms do not compensate their analysts primarily on earnings accuracy, but rather on client feedback whether measured by direct feedback, equity commissions, surveys or some combination.

Fortunately, the study did examine the II rankings as a proxy for client service (some would debate how well correlated they are, as evidenced by declining reliance by sell-side firms in compensating analysts based on their rankings.)  The study finds that female analysts are 10% more likely to II ranked than their male counterparts.  When controlled for the fact that women are more highly represented at the bulge firms (and bulge firms more highly represented in the II rankings) the probability drops to around 1%.


The study concludes that differences in job performance are offsetting (worse earnings forecasting balanced by higher likelihood to be II ranked) and thus that the under-representation of women among sell-side analysts is a factor of preferences rather than discrimination.  Which, in itself, may show that women are innately smarter than men.
For the full study click here.


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