Social skills remain an advantage for analysts as AI cannot initiate personal interactions and engage in any form of teamwork that needs communication.

With the rise of the use of robot-analysts and AI tools to guide investment-making decisions, is the job of a financial analyst in question? Not the least - if they are socially connected on LinkedIn, have an MBA degree and have spent some years in the profession.

In his research paper, “The Effect of Social Skills on Analyst Performance”, Assistant Professor of Accounting, An-Ping Lin, delves into the relationship between social skills and the performance and career advancement of financial analysts.

His study explores the significant and positive impacts of social skills on the financial analyst field and reveals that analysts with higher social skills tend to be more accurate in their forecasts, more favoured by management, be in leadership positions, have an MBA and have more years of experience. It also shows the necessity of social skills training both in educational institutions and workplaces, as there is no real substitute for these skills that have emerged in the face of advancing technology.

What are social skills?

Social skills, also referred to as interpersonal or soft skills, cover verbal communication skills, nonverbal communication, the ability to get along with people, show sensitivity to others' feelings, and express opinions positively. In short, social skills are the competencies that help individuals establish relationships with others and interact effectively with others. That being said, these skills are often not mentioned in the job descriptions for financial analysts.

Using the size of social networks as a measure of social skills

Based on existing research that suggests a strong link between social skills and the size of social networks, the team looked into 38,875 analyst-company-year observations, associated with 2,767 unique companies and 2,280 unique analysts on LinkedIn. By using the number of connections on equity analysts' LinkedIn profiles as a measure of their social skills, they considered analysts with more connections than the median as having better social skills or being more sociable.

After validating the measure of social skills, the researchers examined whether and how financial analysts’ social skills affect their research performance. Their research performance was measured on both the accuracy of their earnings forecasts and the returns on their stock recommendations.

The research found that more sociable analysts have better research performance. They tend to issue more accurate earnings forecasts and more profitable “buy” stock recommendations, showing that they can obtain more relevant information from their information sources. Investors also react more strongly to more sociable analysts’ stock recommendations in the short window, suggesting that they communicate research more effectively to investors. 

It was also found that sociable analysts are more likely to be voted as all-star analysts, suggesting that they provide better services to institutional clients, who are also the voters or have better relationships with those clients.

To alleviate the concern that the total number of LinkedIn connections may not reflect an analyst’s social skills, the researchers conducted three validation tests.

In one test, they examined whether analysts who were more sociable enjoyed better management access during earnings calls. They found that these analysts were treated more favourably by managers. Specifically, they were given higher priority to ask questions during Q&A sessions, and management provided longer answers to their questions.

In another test, the team found that analysts who were more sociable were more likely to be in leadership positions within analyst teams. This finding supports previous studies that suggest social skills are crucial for effective leadership and teamwork. 

In the third test, they discovered that sociable analysts were more likely to have more years of work experience and an MBA. The researchers expected analysts with MBAs to have better social skills than those without one since one of the goals of MBA programmes is to develop students’ interpersonal skills. These programmes promote group projects, team presentations, and public speeches to improve students’ social skills. They also provide students with an opportunity to expand their networks and develop leadership skills.

Perceived sociability vs physical attractiveness

Previous research has indicated a connection between an analyst's performance and physical attractiveness. It is worth noting that while attractiveness can influence the perception of sociability, these two concepts are distinct from each other.

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To ensure that the findings are driven by enhanced social skills rather than physical appearance, human evaluators were enlisted to rate analysts' LinkedIn profile photos. Following this, physical appearance was included as an additional control variable in the statistical analyses. Even after accounting for physical appearance, the conclusions and interpretations remained the same.

The significance of the research

Until now, only a few empirical studies have explored the impact of social skills on professionals' performance. This study provides the first extensive evidence, based on a large sample, highlighting the crucial role of social skills in the performance of financial analysts.

The value of social skills in the performance of equity analysts is significant because of the nature of their job, which involves gathering and analysing information as well as communicating smoothly with investors and corporate management. 

Analysts with stronger social skills tend to have a wider social network that can be a valuable source of information, allowing analysts to grow their industry knowledge. Analysts with better social skills can also become more influential in the market as they communicate more effectively with their sources and investors. 

Benefits of social skills for career advancement

Asst Prof Lin's research found that analysts who had stronger social skills tended to outperform their peers and had better opportunities for career advancement. 

Sociable analysts are more likely to move from a low-status brokerage firm to a high-status brokerage firm. They also have better job security when their employers are acquired by other brokerage firms. 

Since analysts who were more sociable tended to perform better, the findings support the idea of incorporating social skills into the hiring process in organisations. Ultimately, the findings emphasise the importance of social skills training. The benefits of such training are likely to outweigh the associated costs, and organisations can attract high-calibre talent.

The value of social skills in the era of AI literacy

The team’s findings offer some insights into the sustainability of the analyst profession because of the potential threat posed by artificial intelligence (AI).

“In my opinion, while AI has made some hard skills less relevant compared with decades ago, it could make individuals’ soft skills more important over time because it is unlikely that humans will ever develop a strong emotional connection with machines, although we have seen that in some movies. As a result, in the age where AI literacy is becoming a requirement, those with better social skills will stand out and enjoy a greater premium in the labour market,” says Asst Prof Lin.

He also believes that since both nature and nurture contribute to the development of social skills, the findings emphasise the importance of social skills training in business schools. For example, schools can emphasise more on group projects, team presentations, and public speeches to improve students’ social skills. 

In the professional world, much can be done to improve emotional intelligence and communication. As Asst Prof Lin shares, “We should keep in mind that communication is a two-way street, so it’s not just about speaking but also about listening. Although AI can collect and process publicly available financial information much more efficiently than human analysts, it cannot initiate conversations with people who may have privileged information about a company and press them for it. In this regard, I believe that AI will be a tool to help human analysts work better and will not replace them, at least in the foreseeable future.”