The Effect of Industry Co-Location on Analysts’ Information Acquisition Costs

45 Pages Posted: 13 Aug 2013 Last revised: 18 Feb 2017

See all articles by Jared N. Jennings

Jared N. Jennings

Washington University in St. Louis

Joshua A. Lee

Brigham Young University

Dawn A. Matsumoto

University of Washington - Department of Accounting

Date Written: February 17, 2017

Abstract

We examine how the co-location of firms in the same industry affects analysts’ cost of gathering and processing information. We find that when the firms in an analyst’s portfolio are located farther away from other firms in the same industry, the analyst’s portfolio size is smaller and average forecast accuracy is lower. We further find that the additional costs that analysts incur to follow distant firms are amplified when earnings are more difficult to forecast. Lastly, we provide some evidence that managers are more knowledgeable about other firms in the same geographic area. Specifically, managers are more likely to reference firms in their industry that are geographically closer during conference calls. This paper provides additional evidence that the co-location of firms in the same industry not only affects operating and strategic decisions (as documented in the existing literature) but also analysts’ costs of gathering and analyzing information about the firm.

Keywords: Geographic Location; Voluntary Disclosure; Security Analysts

JEL Classification: D83, M40, M41, R10, R12

Suggested Citation

Jennings, Jared N. and Lee, Joshua A. and Matsumoto, Dawn, The Effect of Industry Co-Location on Analysts’ Information Acquisition Costs (February 17, 2017). Available at SSRN: https://ssrn.com/abstract=2308879 or http://dx.doi.org/10.2139/ssrn.2308879

Jared N. Jennings (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Joshua A. Lee

Brigham Young University ( email )

United States
801-422-3154 (Phone)

HOME PAGE: http://https://marriottschool.byu.edu/directory/details?id=37414

Dawn Matsumoto

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States
206-543-4454 (Phone)
206-685-9392 (Fax)

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