Friends or Bullies? Common Analysts and Conforming Corporate Investment Strategies
39 Pages Posted: 8 Nov 2019
Date Written: October 28, 2019
This paper shows that firms have conforming investment patterns within the same analyst coverage network. Analyses using exogenous variation generated by idiosyncratic equity shocks suggest such common analysts propagate investment conformity across firms they cover. This result is mainly driven by acquisition investments. We further show that this positive link is offset for firms with poor growth opportunities while strengthened for those with good prospects yet short shareholder horizons. We find that acquisition wealth effect for the acquirer firm is positively influenced by average value creation of its analyst peers' acquisitions in the prior year. Deals are also more likely to be completed when analyst peers' acquisitions are more value-enhancing. Overall evidence indicates that common analysts foster not only conformity but also efficiency in corporate investment.
Keywords: Analyst Coverage, Corporate Investment, M&A, Common Analysts
JEL Classification: G23, G34
Suggested Citation: Suggested Citation