Analysts’ Choice of Peer Companies

46 Pages Posted: 12 Dec 2013

See all articles by Gus De Franco

Gus De Franco

Tulane University - A.B. Freeman School of Business

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Stephannie Larocque

University of Notre Dame - Mendoza College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2013

Abstract

This is the first large-scale study to examine the peer companies used by sell-side equity analysts in their research reports. Using a unique hand-collected data set, we investigate the relation between peer valuation and peer choice by analysts. Controlling for numerous factors, we find that analysts on average select peer companies with high valuations. We further find that this effect varies systematically with analysts’ incentives and ability. Our evidence provides partial support for the idea that analysts choose peers strategically. We also find some support for the idea that the selection of peers with high valuations is used in part to justify the optimistically skewed target prices and stock recommendations.

Keywords: Analysts, peer selection, valuation, stock recommendations, target prices, bias, incentives

JEL Classification: G30, G31, G32, G34, M41

Suggested Citation

De Franco, Gus and Hope, Ole-Kristian and Larocque, Stephannie A., Analysts’ Choice of Peer Companies (December 11, 2013). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2366341

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Stephannie A. Larocque

University of Notre Dame - Mendoza College of Business ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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