Analyst Coverage Networks and Corporate Financial Policies

59 Pages Posted: 30 Dec 2015 Last revised: 28 Sep 2017

See all articles by Armando R. Gomes

Armando R. Gomes

Washington University in Saint Louis - John M. Olin Business School

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Mark T. Leary

Washington University in St. Louis - Olin Business School; National Bureau of Economic Research (NBER)

Francisco Marcet

University of Chile- School of Economics and Business

Date Written: September 23, 2017

Abstract

Sell-side analysts play an important role in propagating corporate capital structure choices across firms. Using exogenous characteristics of analyst network peers as well as the “friends-of-friends” approach from the network effects literature to identify peer effects, we find that exogenous changes to financial policies of firms covered by an analyst lead other firms covered by the same analyst to implement similar policy choices. This mechanism has significant effects on leverage and equity issuance decisions. Our evidence indicates that these analyst network peer effects are distinct from industry peer effects, propagate from leader to follower firms and are more pronounced among peers connected by analysts that are more experienced and from more influential brokerage houses.

Keywords: Peer effects, Analyst Coverage Network, Corporate Financial Policies

JEL Classification: G24, G32, G34

Suggested Citation

Gomes, Armando R. and Gopalan, Radhakrishnan and Leary, Mark T. and Marcet, Francisco, Analyst Coverage Networks and Corporate Financial Policies (September 23, 2017). Available at SSRN: https://ssrn.com/abstract=2708935 or http://dx.doi.org/10.2139/ssrn.2708935

Armando R. Gomes

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
3145607087 (Phone)

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Mark T. Leary

Washington University in St. Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francisco Marcet (Contact Author)

University of Chile- School of Economics and Business ( email )

Diagonal Paraguay 257
Floor 1003
Santiago, R. Metropolitana 7520421
Chile
+56-229783567 (Phone)

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