Cultural Diversity on Wall Street: Evidence from Consensus Earnings Forecasts

We study the effect of diversity on Wall Street by examining how analyst cultural diversity relates to the quality of the consensus earnings forecast, one of the most widely used firm-level financial metrics. Using both exogenous shocks to sell-side analyst diversity and panel regression methods, we find that increases in analyst cultural diversity positively affect the quality of the consensus earnings forecast. These positive effects of cultural diversity are also robust to controlling for other dimensions of diversity. We further provide evidence on the potential mechanisms underlying this result by showing that cultural diversity is associated with improvements in individual analyst forecasts, greater analyst conference call participation and interaction, and greater diversity in analyst education backgrounds and professional interests. Overall, our results indicate that cultural diversity on Wall Street can generate significant benefits for investors.