Common Analysts –Method for Defining Peer Firms
55 Pages Posted: 30 Dec 2012 Last revised: 10 Jan 2019
Date Written: December 20, 2018
We develop a method for defining groups of peer firms on the basis of joint analyst coverage. Besides industry boundaries, analysts’ coverage choices can reflect other important aspects of firm relatedness. We find that the analyst-based method produces substantially more homogenous groups of firms compared to common industry classifications, and has a number of other desirable properties. The paper has two broader economic implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new positive information production externality generated by the institution of security market analysis.
Keywords: Peer firms, industry classification, analysts
JEL Classification: G19, G39
Suggested Citation: Suggested Citation