Where fools fear to tread: Analysts' tenure and performance on banks' stock coverage initiation

This paper suggests that there is a trade-off between individuals' incentives to explore new organizational opportunities and individuals' authority to explore options which are less adopted in the organizational field. Organizational members who hold legitimacy to drive the organization to explore less legitimate alternatives (i.e., members with relatively high organizational tenure and comparatively high performance) are indeed also those who wish to preserve the organizational arrangements. Empirical analysis of stock coverage initiation of investment banks shows that security analysts with higher organizational experience and better relative forecast performance are less likely to initiate new stock coverage for the bank they work for, but, when they initiate new coverage, they tend to focus on less covered stocks in the field. These findings provide novel micro-foundations to institutional theory.