Analyst Forecasts, Managerial Learning, and Corporate Investment

Building on prior results that financial analysts have an information advantage relative to managers at the macroeconomic level, we show that such an information advantage is an important source of what managers learn from analysts in making investment decisions. Specifically, the sensitivity of corporate capital investment to analyst forecasts of firm earnings or long-term growth is positively associated with the exposure of a firm’s operations to macroeconomic factors, including the business cycle and energy prices. This effect is concentrated among firms whose analysts have greater macro-level insights or firms that have higher capital intensity and hence stronger incentives to learn. Overall, our results suggest that managers learn from analysts regarding the implications of macroeconomic factors for firm-specific prospects and incorporate what they learn into their capital investment decisions.