Analyst Coverage Networks and Corporate Financial Policies
67 Pages Posted: 30 Dec 2015 Last revised: 21 Jun 2022
Date Written: September 23, 2017
We use the setting of analyst coverage networks to shed light on the nature of peer effects in financial policies. First, we use the “friends-of-friends” approach and exploit the fact that analyst coverage networks partially overlap to identify endogenous peer effects, in which firms respond directly to the capital structure choices of their peers, separately from contextual effects, in which they respond to their peers’ characteristics. We further show evidence that analysts facilitate these peer effects through their role as informational intermediaries. Analyst network peer effects are distinct from industry peer effects, and are more pronounced among peers connected by analysts that are more experienced and from more influential brokerage houses. Finally, the analyst peer effects become weaker after exogenous reductions in common coverage as a consequence of brokerage closures.
Keywords: Peer effects, Analyst Coverage Network, Corporate Financial Policies
JEL Classification: G24, G32, G34
Suggested Citation: Suggested Citation