Analyst Coverage Networks and Corporate Financial Policies

67 Pages Posted: 30 Dec 2015 Last revised: 21 Jun 2022

See all articles by Armando R. Gomes

Armando R. Gomes

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

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

Gomes, Armando R. and 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 St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

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

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (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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