Complexity and Analyst Following of Multinational Firms
23 Pages Posted: 16 May 2000
Date Written: January 2000
This research studies the association between multinational firm complexity and analyst following. We first present a model of a firm?s operational complexity in terms of its lines of business and geographic operating regions, considered separately, jointly, and interactively, including a measure of operating segment complexity incorporating both line of business and geographic region information. Using ordinary least squares regression, we empirically measure the relationship between firm complexity and analyst following, controlling for firm size, risk, and ownership structure. Our analysis of about 250 firms is consistent with our hypothesis of a negative association between firm complexity and analyst following. Results on the interactive variable, operating segment complexity, are negative and significantly associated with analyst following. However, this model does not improve on those including lines of business and geographic operating regions separately and jointly. Our findings add to our understanding of the role of complexity in affecting analyst following of multinational firms, and have implications for segment reporting under SFAS 131.
JEL Classification: G29, M41, M45
Suggested Citation: Suggested Citation