Balancing Diversity in analyst teams: Examining the impact of informational and social Diversity on analyst team Performance

Using detailed information on team analysts' background, we study how diversity and the type of diversity influence overall effectiveness and performance of an analyst team. Informational diversity reflects skills-based differences among group members, for instance, education background and work experience, while social diversity captures innate characteristics that individuals are born with, such as gender and ethnicity. We find that informational diversity is associated with less timely, but more accurate, forecasts. Social diversity has no impact on team performance. We find that group longevity moderates the negative association between informational diversity and timeliness. Further analysis indicates that the benefits of diversity is more pronounced when the forecast firm is more complex, but moderated when the brokerage house has greater access to proprietary information. Informational diversity decreases a team member's probability of gaining star status, thereby confirming the benefits of a homophilic environment. Our findings highlight that diversity is a double-edged sword for employees in the financial markets.