Analysts' Technological Proximity Knowledge and Earnings Forecasts

ABSTRACT Using a novel measurement of technological links among firms covered by the same analysts, this paper investigates the impact of analysts' technological proximity knowledge on their forecast behaviours. Our empirical findings highlight that technological links significantly improve analyst forecast accuracy, indicating that technological links result in spillover effects for analysts. This effect is more pronounced among analysts covering firms with worse information environments and higher business diversification. Mechanism analyses reveal that technological links significantly enhance analysts' ability to access and interpret innovation‐related information, thereby contributing to improved forecast accuracy. Moreover, covering technologically linked firms can not only increase the likelihood of becoming a star analyst in the future, but also provide investors with additional information through the forecast revisions of these analysts. Collectively, these results shed light on how cross‐firm technological connectivity improves analysts' information acquisition and dissemination and shapes the capital market through analysts' ties.