Why Do Workers at Larger Firms Outperform?
Workers at larger firms outperform on average. For example, equity analysts working for more reputable brokerage firms produce more accurate earnings forecasts. Analysts employed by the highest ranked brokerages are about 6% more accurate than those employed by the lowest ranked brokerages, which is equivalent to an advantage of 17.5 years of more experience. This outperformance is driven by two significant effects: more reputable firms provide more resources that improve analysts' forecasting ability (influence), while more reputable firms also attract more talented candidates (sorting). We estimate a two-sided matching model to disentangle these two effects. We find that the direct influence effect accounts for 73% of the total impact while the sorting effect accounts for the remaining 27%.
