Analyst Coverage and Intangible Assets

56 Pages Posted: 26 Mar 2001

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Ron Kasznik

Stanford Graduate School of Business

Maureen F. McNichols

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2000

Abstract

This study examines the relation between analyst activity and intangible assets. Because intangible assets typically are unrecognized and estimates of their fair values are not disclosed, absent analyst coverage, firms with more intangible assets likely have less informative prices. Accordingly, we expect analysts have greater incentives to cover firms with more intangible assets and, thus, predict that they have higher analyst coverage. Our tests employ eight proxies that reflect industries' and firms' intangible assets related to research and development and advertising activities, and sundry other intangible assets. We also predict and find that analyst coverage is increasing in firm size, growth, trading volume, equity issuance, and perceived mispricing, and is decreasing in the size of the firm's analysts' brokerage houses and effort analysts expend to follow the firm. These findings indicate that analyst coverage depends on private benefits and costs of covering a firm. We also test hypotheses related to analyst effort. We predict and find that analysts expend greater effort to follow firms with more intangible assets, after controlling for other factors associated with analyst effort. Our evidence indicates that intangible assets, most of which are not recognized in firms' financial statements, are associated with greater incentives for analysts to cover such firms, and greater costs of coverage. An open question is whether financial statement recognition of intangible assets could more efficiently provide information about such assets to investors.

Keywords: Analyst coverage, intangible assets

JEL Classification: M41, G29

Suggested Citation

Barth, Mary E. and Kasznik, Ron and McNichols, Maureen F., Analyst Coverage and Intangible Assets (March 2000). Available at SSRN: https://ssrn.com/abstract=263981 or http://dx.doi.org/10.2139/ssrn.263981

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Ron Kasznik

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-9740 (Phone)
650-725-6152 (Fax)

Maureen F. McNichols

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-0833 (Phone)
650-725-7979 (Fax)

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