Firms’ innovation strategy under the shadow of analyst coverage

By Bing Guo, David Pérez-Castrillo, Anna Toldrà-Simats. Journal of Financial Economics, 2019

210 citations recorded by the source corpus.

We study the effect of analyst coverage on firms’ innovation strategy and outcome. By considering three different channels that allow firms to innovate: internal RD however, this negative effect becomes not significant when firms’ in-house R&D spending and external innovation channels are taken into account. We find that more financial analysts encourage firms to make more efficient investments related to innovation, which increase their future patents and citations. We address endogeneity with an instrumental variables approach and a difference-in-differences strategy where exogenous variation in analyst coverage comes from brokerage house mergers.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/5aea0f76497c64a411b6bf162f66382aacd47a9c