Friends or Bullies? Common Analysts and Conforming Corporate Investment Strategies

39 Pages Posted: 8 Nov 2019

See all articles by Luca Xianran Lin

Luca Xianran Lin

University of Navarra, IESE Business School

Date Written: October 28, 2019

Abstract

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

Lin, Luca Xianran, Friends or Bullies? Common Analysts and Conforming Corporate Investment Strategies (October 28, 2019). Available at SSRN: https://ssrn.com/abstract=3476876 or http://dx.doi.org/10.2139/ssrn.3476876

Luca Xianran Lin (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson, 21
IESE Business School, H-300
Barcelona, Barcelona 08034
Spain

HOME PAGE: http://lucaxlin.com

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