Financial analysts play an important intermediary role between investors and firms. An important function of analysts is detecting possible changes in the firm’s performance. Research has found, however, that analysts exhibit inertia in their recognition of radical organizational change. In this paper, we propose that this inertia can be a natural consequence of experiential learning that occurs over the course of an analyst’s career. Specifically, we note that more experienced analysts will tend to have observed higher variance than their less experienced peers. This would lead to analysts with greater experience being less responsive to changes in firm performance, which mitigates reactions to mere fluctuations but also mutes their recognition of true change. We validate our predictions with a regression analysis using a set of predictions by security analysts from the IBES database. Our results have important implications for firms because analysts’ inertia could affect a firm’s persistence with organizational changes.

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