Firms’ innovation strategy under the shadow of analyst coverage

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We study the effect of analyst coverage on firms' innovation strategy and outcome. By considering three different channels that allow firms to innovate: internal R&D, acquisitions of other innovative firms, and investments in corporate venture capital (CVC), we are able to distinguish between the pressure and information effect of analysts. Using the data of US firms from 1990 to 2012, we find evidence that: i) an increase in financial analysts leads firms to cut R&D expenses, and ii) more analyst coverage leads firms to acquire more innovative firms and invest in CVC. We attribute the first result to the effect of analyst pressure, and the second to the informational role of analysts. In line with the previous literature, we also find that analyst coverage has a negative effect on firms' future patents and citations; however, this negative effect becomes not significant when firms' in-house R&D spending and external innovation channels are taken into account. We find that more financial analysts encourage firms to make more efficient investments related to innovation, which increase their future patents and citations. We address endogeneity with an instrumental variables approach and a difference-in-differences strategy where exogenous variation in analyst coverage comes from brokerage house mergers. Terms of use: Documents inJEL-Codes: G340, G240, O310.

Do the Green Credit Guidelines Affect Corporate Green Technology Innovation? Empirical Research from China

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“…Foreign investors pay more attention to the information reports about the long-term development prospects of enterprises, and regard innovation investment as the future growth signal, to promote enterprise managers to increase innovation input. Domestic investors pay more attention to information reports on enterprises' short-term performance growth and do not care whether enterprises carry out innovation activities [9]. Therefore, based on the signal transmission theory and the above analysis, this paper believes that the institutional coverage will change the information environment of the external capital market to a certain extent, and interact with the gap and rating of market expectation to influence enterprise innovation input.…”

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