Do Managers Learn from Analysts?

65 Pages Posted: 16 Oct 2017 Last revised: 18 Apr 2022

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Wei Shi

Deakin University

K.C. John Wei

Hong Kong Polytechnic University

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Date Written: June 1, 2019

Abstract

To maximize firm value managers must efficiently invest new capital. This paper examines whether managers learn from analysts in making capital investment decisions. Using broker mergers and closures as exogenous shocks to the number of analysts covering a firm, we find that firm investment-Q sensitivity significantly decreases after losing an analyst. The impact is largest for firms with the fewest number of analysts. Moreover, the effect is mainly driven by the role analysts play in information acquisition and in price efficiency. We also find the spillover effect of analyst coverage using Reg FD as an alternative shock to analyst information production. The results suggest that the recent decline in analyst coverage may negatively impact firm investment and market-wide resource allocation.

Keywords: Analyst coverage; Broker mergers and closures; Managerial learning; Investment-Q sensitivity; Reg FD

JEL Classification: D83, G15, G31, K22

Suggested Citation

Brogaard, Jonathan and Shi, Wei and Wei, Kuo-Chiang (John) and You, Haifeng, Do Managers Learn from Analysts? (June 1, 2019). Available at SSRN: https://ssrn.com/abstract=3053491 or http://dx.doi.org/10.2139/ssrn.3053491

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Wei Shi (Contact Author)

Deakin University ( email )

Burwood 3125, VIC
Melbourne, 3125
Australia

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

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