Analyst Coverage and Innovation: Evidence from New Product Introduction

Posted: 30 Aug 2017 Last revised: 10 Oct 2020

See all articles by Fangzhou Liu

Fangzhou Liu

Shanghai University of Finance and Economics - Department of Finance

Date Written: August 29, 2017

Abstract

This paper investigates the relationship between analyst coverage and new product introduction. Using information on consumer-packaged goods, I find that higher analyst coverage leads to more new product introductions. To establish causality, I exploit brokerage mergers and closures to identify exogenous loss in analyst coverage. Affected firms experience reduction in incremental product introduction immediately and reduction in breakthrough new product production in a staggered fashion. Further evidence shows that firms reduce equity raising and pay-for-performance sensitivity around analyst shocks. My findings suggest that analysts spur product innovation, and that the timing of firms’ response varies by the significance of innovation.

Keywords: Analyst coverage, new product introduction, monitoring, innovation

JEL Classification: G24, G30, C32, C36

Suggested Citation

Liu, Fangzhou, Analyst Coverage and Innovation: Evidence from New Product Introduction (August 29, 2017). Available at SSRN: https://ssrn.com/abstract=3028631 or http://dx.doi.org/10.2139/ssrn.3028631

Fangzhou Liu (Contact Author)

Shanghai University of Finance and Economics - Department of Finance ( email )

Shanghai, 200433
China

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