Analyst Coverage Overlaps and Interfirm Information Spillovers

Tim Martens, Christoph Sextroh

Research output: Working paperOther research output

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 knowledge spillovers, we find that firms are more likely to cite another firm's patent if this 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 effects are not simply due to dynamic adjustments in firms' business models and corresponding changes in analyst coverage, but instead are consistent with a plausible causal relationship between analyst coverage overlaps and interfirm information spillovers. The effect is also stronger for analysts with relatively higher industry-specialization, a higher level of experience, a larger coverage portfolio, and higher activity, as well as firm pairs with larger geographic or organizational diversity. Overall, our findings suggest that capital market relationships do not only play an important role in facilitating information transfer and reducing information asymmetries between firms and capital markets, but also facilitate the production of relevant business intelligence through feedback and interfirm information transfers.
Original languageEnglish
Publication statusUnpublished - 2019

Fingerprint

Information spillover
Analyst coverage
Capital markets
Financial analysts
Information transfer
Information asymmetry
Business model
Patent citations
Exogenous shocks
Analysts
Dynamic adjustment
Business intelligence
Difference-in-differences
Industry specialization
Knowledge spillovers
Patents

Cite this

@techreport{b69fa5cabf7e4f9096693727f5f68705,
title = "Analyst Coverage Overlaps and Interfirm Information Spillovers",
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 knowledge spillovers, we find that firms are more likely to cite another firm's patent if this 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 effects are not simply due to dynamic adjustments in firms' business models and corresponding changes in analyst coverage, but instead are consistent with a plausible causal relationship between analyst coverage overlaps and interfirm information spillovers. The effect is also stronger for analysts with relatively higher industry-specialization, a higher level of experience, a larger coverage portfolio, and higher activity, as well as firm pairs with larger geographic or organizational diversity. Overall, our findings suggest that capital market relationships do not only play an important role in facilitating information transfer and reducing information asymmetries between firms and capital markets, but also facilitate the production of relevant business intelligence through feedback and interfirm information transfers.",
author = "Tim Martens and Christoph Sextroh",
year = "2019",
language = "English",
type = "WorkingPaper",

}

Analyst Coverage Overlaps and Interfirm Information Spillovers. / Martens, Tim; Sextroh, Christoph.

2019.

Research output: Working paperOther research output

TY - UNPB

T1 - Analyst Coverage Overlaps and Interfirm Information Spillovers

AU - Martens, Tim

AU - Sextroh, Christoph

PY - 2019

Y1 - 2019

N2 - 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 knowledge spillovers, we find that firms are more likely to cite another firm's patent if this 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 effects are not simply due to dynamic adjustments in firms' business models and corresponding changes in analyst coverage, but instead are consistent with a plausible causal relationship between analyst coverage overlaps and interfirm information spillovers. The effect is also stronger for analysts with relatively higher industry-specialization, a higher level of experience, a larger coverage portfolio, and higher activity, as well as firm pairs with larger geographic or organizational diversity. Overall, our findings suggest that capital market relationships do not only play an important role in facilitating information transfer and reducing information asymmetries between firms and capital markets, but also facilitate the production of relevant business intelligence through feedback and interfirm information transfers.

AB - 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 knowledge spillovers, we find that firms are more likely to cite another firm's patent if this 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 effects are not simply due to dynamic adjustments in firms' business models and corresponding changes in analyst coverage, but instead are consistent with a plausible causal relationship between analyst coverage overlaps and interfirm information spillovers. The effect is also stronger for analysts with relatively higher industry-specialization, a higher level of experience, a larger coverage portfolio, and higher activity, as well as firm pairs with larger geographic or organizational diversity. Overall, our findings suggest that capital market relationships do not only play an important role in facilitating information transfer and reducing information asymmetries between firms and capital markets, but also facilitate the production of relevant business intelligence through feedback and interfirm information transfers.

M3 - Working paper

BT - Analyst Coverage Overlaps and Interfirm Information Spillovers

ER -