This appears to be some interesting research about the negative effects of company innovation and analyst coverage.
The synopsis reads.....
In our paper, The Dark Side of Analyst Coverage: The Case of Innovation, forthcoming in the Journal of Financial Economics, we examine the effect of analyst coverage on firm innovation and test two competing hypotheses. We find that firms covered by a larger number of analysts generate fewer patents and patents with lower impact. To establish causality, we use a difference-in-differences approach and an instrumental variable approach. Our identification tests suggest a causal effect of analyst coverage on firm innovation. The evidence is consistent with the hypothesis that analysts exert too much pressure on managers to meet short-term goals, impeding firms’ investment in long-term innovative projects. Finally, we discuss possible underlying mechanisms through which analysts impede innovation and show a residual effect of analyst coverage on firm innovation even after controlling for such mechanisms. Overall, our study offers novel evidence of a previously under-explored adverse consequence of analyst coverage, namely, its hindrance to firm innovation.
The synopsis reads.....
In our paper, The Dark Side of Analyst Coverage: The Case of Innovation, forthcoming in the Journal of Financial Economics, we examine the effect of analyst coverage on firm innovation and test two competing hypotheses. We find that firms covered by a larger number of analysts generate fewer patents and patents with lower impact. To establish causality, we use a difference-in-differences approach and an instrumental variable approach. Our identification tests suggest a causal effect of analyst coverage on firm innovation. The evidence is consistent with the hypothesis that analysts exert too much pressure on managers to meet short-term goals, impeding firms’ investment in long-term innovative projects. Finally, we discuss possible underlying mechanisms through which analysts impede innovation and show a residual effect of analyst coverage on firm innovation even after controlling for such mechanisms. Overall, our study offers novel evidence of a previously under-explored adverse consequence of analyst coverage, namely, its hindrance to firm innovation.
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