Analyst Coverage Overlaps and Interfirm Information Spillovers

64 Pages Posted: 5 Aug 2019 Last revised: 18 Sep 2019

See all articles by Tim Martens

Tim Martens

University of Mannheim - Accounting and Taxation

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management

Date Written: July 31, 2019

Abstract

We investigate the role of financial analysts in facilitating the flow of relevant competitive information between firms. Using patent citations as a proxy for interfirm information spillovers, we find that firms are more likely to cite another firm's patent if that firm is covered by the same financial analyst. Difference-in-difference analyses exploiting exogenous shocks to analyst coverage overlaps over time suggest that the documented effect is not simply due to changes in firms' business models and corresponding changes in analyst coverage; consistent with a causal relationship between analyst coverage overlaps and interfirm information spillovers. The effect is stronger for analysts with a relatively higher industry-specialization, more experience, a larger coverage portfolio, and a higher forecast activity, as well as for firm pairs with a larger geographic or organizational diversity. Overall, our findings suggest that capital market relationships not only play an important role in reducing information asymmetries between firms and capital markets but also facilitate the production of business intelligence through feedback and interfirm information transfers.

Keywords: Analyst Coverage, Capital Market Relationships, Feedback Effect, Knowledge Flow, Information Spillover, Patent Citations

JEL Classification: G24, G30, O31

Suggested Citation

Martens, Tim and Sextroh, Christoph J., Analyst Coverage Overlaps and Interfirm Information Spillovers (July 31, 2019). Available at SSRN: https://ssrn.com/abstract=3428691 or http://dx.doi.org/10.2139/ssrn.3428691

Tim Martens

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Christoph J. Sextroh (Contact Author)

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

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

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