Cultural Diversity on Wall Street: Evidence from Sell-Side Analysts’ Forecasts

We study the effect of cultural diversity on an industry’s labor force using information about sell-side research analysts’ cultural backgrounds and their output, the consensus earnings forecast. Using both exogenous shocks to analyst diversity and panel regression methods, we find that increases in 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 explore earnings conference calls as one viable mechanism for our findings, and find that cultural diversity increases conference call participation and interaction, indicating that diversity improves information flows. Overall, our results indicate that cultural diversity on Wall Street can generate significant benefits for investors.