Examining financial analyst herding behavior in collectivistic versus individualistic countries

Research Question: Does national culture influence financial analysts’ herding behavior and does firm-level uncertainty intensify this relationship? Motivation: Analyst herding can reduce the information quality of analysts’ forecasts and impair market efficiency. Prior research has examined the effects of the information environment on analyst herding behavior, but limited research has examined how the national culture where analysts are located impacts the propensity to engage in herding behavior. Idea: The study examines the impact of the collectivism-individualism dimension of national culture on analyst herding behavior. We argue that analysts in collectivistic cultures face stronger pressures to conform to consensus forecasts, especially when there exists greater uncertainty in the firm information environment. Data: The sample consists of 28,588 firm-year observations from 2010-2020 across multiple international stock exchanges using analyst forecast data from I/B/E/S and firm information from Compustat. Tools: Analyst herding is measured using the S-statistic. National culture is proxied using Hofstede’s individualism index (inverted to measure collectivism), and regression models include firm and year fixed effects. Findings: Analyst herding is significantly more prevalent in collectivistic countries than in individualistic countries. Furthermore, the relation between collectivism and herding is stronger when firms operate in information environments characterized by greater information uncertainty. Contribution: The study provides international evidence that national culture impacts analyst behavior. By showing that collectivistic national cultures are associated with greater analyst herding, the study highlights the impact that cultural norms can have on financial market inputs, given the role of financial analysts as important information intermediaries.