THE ACCOUNTING REVIEWAmerican Accounting AssociationVol. 97, No. 5DOI: 10.2308/TAR-2020-0096September 2022pp. 221–244Human Versus Machine: A Comparison of Robo-Analystand Traditional Research Analyst InvestmentRecommendationsBraiden ColemanUniversity of GeorgiaKenneth MerkleyIndiana UniversityJoseph PacelliHarvard UniversityABSTRACT: We provide the first comprehensive analysis of the properties of investment recommendationsgenerated by ‘‘Robo-Analysts,’’ which are human analyst-assisted computer programs conducting automatedresearch analysis. Our results indicate that Robo-Analyst recommendations differ from those produced by traditional‘‘human’’ research analysts across several important dimensions. First, Robo-Analysts produce a more balanceddistribution of buy, hold, and sell recommendations than do human analysts and are less likely to recommend‘‘glamour’’ stocks and firms with prospective investment banking business. Second, automation allows Robo-Analysts to revise their recommendations more frequently than human analysts and incorporate information fromcomplex periodic filings. Third, while Robo-Analysts’ recommendations exhibit weak short-window return reactions,they have long-term investment value. Specifically, portfolios formed based on the buy recommendations of Robo-Analysts significantly outperform those of human analysts. Overall, our results suggest that automation in the sell-side research industry can benefit investors.JEL Classifications: G14; G24.Keywords: sell-side analysts; investment advice; Fintech; automation.I. INTRODUCTIONThe importance of a robo-analyst to enhance the quality of investment advice shouldn’t be underestimated . . . Byshining an analytical light in the dark corners of financial filings, robo-analyst technology can identify many criticaldata points overlooked by most research analysts today.—Forbes (2017)We benefited from comments and suggestions received from Larry Brown, Elizabeth Demers (discussant), Jared Flake, Ryan Johnson, Philip Joos,Stephannie Larocque (discussant), Christian Leuz, Roni Michaely, Daniel J. Taylor (editor), Brady Twedt, Jim Wahlen, and participants at the 2019 BYUAccounting Research Symposium, 2020 Financial Accounting and Reporting Section Midyear Meeting Plenary Session, the 2020 Swiss AccountingResearch Alpine Camp, the Georgetown University Center for Financial Markets and Policy, Harvard University Business School, Syracuse University,Temple University, University of Calgary, The University of Kansas, University of Missouri, The University of Texas at Austin, Utah State University, the2021 Egyptian Accounting Seminar Series, and the 2021 Paris Fintech Conference. We thank David Trainer and Lee Moneta-Koehler (from NewConstructs) for providing helpful guidance. All remaining errors are our own.Braiden Coleman, University of Georgia, Terry College of Business, J.M. Tull School of Accounting, Athens, GA, USA; Kenneth Merkley, IndianaUniversit...
