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 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.
Original languageEnglish
PublisherSSRN
Publication statusUnpublished - 2019

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

Keywords

  • Analyst coverage
  • Capital market relationships
  • Patent citations
  • Feedback Effect
  • KNOWLEDGE FLOWS
  • Information Spillover

Cite this

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

SSRN, 2019.

Research output: Working paperOther research output

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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 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.

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