Forecasting Earnings from Home

We examine the impact of working from home (WFH) practices on the financial services industry, focusing on sell-side equity analysts. We find that analysts who previously benefited from access to in-person interactions with other informed parties experience a greater decline in earnings forecast accuracy following the COVID lockdown and the shift to WFH. Notably, the informational advantage associated with the in-person access disappears during the lockdown and returns once restrictions are lifted. Our results are stronger for all-star analysts and analysts with shorter coverage periods, suggesting that all-star analysts rely relatively more on access to in-person interactions prelockdown and that accumulated firm-specific knowledge mitigates the loss of in-person interactions. Our results remain robust across alternative analyst performance measures. We conclude that, despite recent advances in communications technology, AI, and machine learning, in-person interactions remain a unique and difficult to substitute information channel for sell-side research providers and that WFH impedes information flows between market participants in capital markets. This paper was accepted by Suraj Srinivasan, accounting. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2024.04637 .