We explore how brokerage firms’ investments in artificial intelligence (AI) affect their analysts’ information production. We find that analysts employed at brokerage firms with greater AI integration issue more accurate earnings forecasts. Cross-sectional analyses reveal that AI’s benefits are more pronounced for analysts with less firm-specific experience and when the firm’s disclosures are more readable. Further tests indicate that a key mechanism driving the improvement in forecast accuracy is that AI adoption helps mitigate the adverse effects of analyst decision fatigue and optimism bias. Finally, we find that forecast revisions made by AI-powered analysts are more informative to capital markets. Overall, our evidence points to the advantageous impact of AI on information production capabilities of financial analysts.
Michael Kimbrough, Musa Subasi, Yang Liu