Keio Research Highlights

Many professions involve decision making. But are professionals' decisions always based on independent analysis, or are social factors at play? Are decisions perhaps made to please a target customer group with the aim of increasing one's status, implying actions that may objectively not be the best? Hitoshi Mitsuhashi at Keio University and colleagues conducted a quantitative study of this behavior, known as status seeking.

The researchers looked at a large group of security analysts, whose job it is to issue recommendations on publicly traded stocks. Every year, Institutional Investor magazine bestows 'All-Star Awards' on selected analysts. These are highly prestigious awards, and 'All-Stars' experience benefits and privileges not afforded to 'non-All-Stars'. All-Star status is temporary, and results from positive recommendations of investors ― analysts' customers. Recommendations are largely service-oriented; criteria include responsiveness to investor needs, promptness of returning phone calls and providing extra insight when necessary. Mitsuhashi and colleagues argue that driven by the goal of becoming (or remaining) an All-Star, analysts act to increase their visibility to investors. In practice, analysts do this by continuously reassessing their portfolio of managed stocks; specifically, by dropping, keeping or starting coverage of particular stocks, taking into account stock coverage by rival analysts. Normal, objective decisions, not resulting from status-seeking behavior, would be solely driven by stock investment value.

Mitsuhashi and colleagues tested their hypotheses using a dataset on analysts' coverage of US stocks from 1995-2007. The data consisted of more than 100,000 quarterly analyst stock portfolio snapshots. Of particular interest are the reactions of analysts covering a given stock to a rival analyst, All-Star or not, also taking on the stock. The researchers observed that such a competitive entry by an All-Star increases the likelihood of other analysts who already have the stock in their portfolio keeping it, but also of their initiating coverage of new stocks.

The researchers found that All-Stars behave differently compared to non-All-Stars, and that in general, the analysts' behavior is of a status-seeking nature. Potential negative implications of such overt status-seeking behavior are that investors may make mistakes and that the assessment of firms may become analyst-specific rather than based on industry performance.

This research on the behavior of analysts is a valuable model for initial insights on competitive environments of actors aware of the importance of status, and it is notable for establishing links between dynamic markets and human competitive behavior with conclusions such as that award criteria for status may not be related to behavior that is beneficial to the market, and that consumers who use status as a basis of producer choice may make erroneous decisions.

1. Bowers, A., Greve, H. R. & Mitsuhashi, H. Look at me: Overt status-seeking behavior and competitive emergence among securities analysts. Research in the Sociology of Organizations 50, 351-382 (2017). | article