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Do Analysts Influence Corporate Financing and Investment?
Author(s) -
Doukas John A.,
Kim Chansog Francis,
Pantzalis Christos
Publication year - 2008
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2008.00014.x
Subject(s) - business , investment (military) , external financing , investment decisions , selection bias , investment banking , corporate finance , finance , selection (genetic algorithm) , monetary economics , accounting , economics , behavioral economics , medicine , debt , pathology , artificial intelligence , politics , political science , computer science , law
We examine whether abnormal analyst coverage influences the external financing and investment decisions of the firm. Controlling for self‐selection bias in analysts' excessive coverage, we find that firms with high (low) analyst coverage consistently engage in higher (lower) external financing than do their industry peers of similar size. Our evidence also demonstrates that firms with excessive analyst coverage overinvest and realize lower future returns than do firms with low analyst coverage. Our findings are consistent with the hypothesis that analysts favor the coverage of firms that have the potential to engage in profitable investment‐banking business.