Analyst Coverage Overlaps and Interfirm Information Spillovers

90 Pages Posted: 5 Aug 2019 Last revised: 9 Jun 2021

See all articles by Tim Martens

Tim Martens

Bocconi University - Department of Accounting

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management

Date Written: May 15, 2021

Abstract

We offer a novel perspective on the role of sell-side analysts as information intermediaries in capital markets by documenting a flow of information in a new direction, namely, from analysts to the firms they cover. We use analyst coverage overlaps and patent citations to examine analyst-induced information spillovers about technology and industry trends. Consistent with analyst coverage-related information flows, firms are more likely to cite another firm’s patent if that firm is covered by the same analyst. The effect varies with analysts’ specialization, experience, and level of activity. Firms with more analyst-based connections to peers also show greater corporate innovation. Collectively, our evidence indicates that financial analysts not only reduce information asymmetries between firms and capital market participants but also facilitate the production of business intelligence through feedback and interfirm information spillovers.

Keywords: Analysts; Coverage overlap; Feedback effect; Knowledge Flow; Information spillover; Patent citations; Corporate innovation

JEL Classification: G24, G30, O31

Suggested Citation

Martens, Tim and Sextroh, Christoph J., Analyst Coverage Overlaps and Interfirm Information Spillovers (May 15, 2021). Available at SSRN: https://ssrn.com/abstract=3428691 or http://dx.doi.org/10.2139/ssrn.3428691

Tim Martens

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Christoph J. Sextroh (Contact Author)

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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