Abstract

http://ssrn.com/abstract=1959125
 
 

References (66)



 
 

Citations (7)



 


 



The Dark Side of Analyst Coverage: The Case of Innovation


Jie He


University of Georgia - Department of Finance

Xuan Tian


Indiana University - Kelley School of Business

February 5, 2013

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
We examine the effects of financial analysts on the real economy in the case of innovation. Our baseline results show that firms covered by a larger number of analysts generate fewer patents and patents with lower impact. To establish causality, we use a difference-in-differences approach that relies on the variation generated by multiple exogenous shocks to analyst coverage, as well as an instrumental variable approach. Our identification strategies suggest a negative causal effect of analyst coverage on firm innovation. The evidence is consistent with the hypothesis that analysts exert too much pressure on managers to meet short-term goals, impeding firms’ investment in long-term innovative projects. We further discuss possible underlying mechanisms through which analysts impede innovation and show that there is a residual effect of analysts on innovation even after controlling for these mechanisms. Our paper offers novel evidence on a previously under-explored adverse consequence of analyst coverage — its hindrance to firm innovation.

Number of Pages in PDF File: 53

Keywords: analyst coverage, innovation, patents, citations, managerial myopia

JEL Classification: G24, O31, G34

Accepted Paper Series


Download This Paper

Date posted: November 14, 2011 ; Last revised: February 8, 2013

Suggested Citation

He, Jie and Tian, Xuan, The Dark Side of Analyst Coverage: The Case of Innovation (February 5, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1959125 or http://dx.doi.org/10.2139/ssrn.1959125

Contact Information

Jie He (Contact Author)
University of Georgia - Department of Finance ( email )
424 Brooks Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States
Xuan Tian
Indiana University - Kelley School of Business ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx
Feedback to SSRN


Paper statistics
Abstract Views: 5,395
Downloads: 1,236
Download Rank: 7,540
References:  66
Citations:  7
Paper comments
No comments have been made on this paper

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.844 seconds