Analyst Coverage Overlaps and Interfirm Information Spillovers
90 Pages Posted: 5 Aug 2019 Last revised: 9 Jun 2021
Date Written: May 15, 2021
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: Suggested Citation