Alternative Title

How do analysts affect corporate innovation: Evidence from site visits

Publication Type

Working Paper

Version

submittedVersion

Publication Date

2-2022

Abstract

While prior studies examine whether analyst coverage affects corporate innovation, there is little research on the mechanism through which financial analysts affect corporate innovation. In this paper, we examine whether and how analysts’ questions about innovation affect corporate innovation activities and outcomes. Using a sample of corporate site visits in China, we find that when analysts ask questions about innovation during site visits, the firms invest more in research and development and file more patent applications in the future. This association is stronger when analysts have a greater information and monitoring role. In addition, consistent with knowledge diffusion between firms, analysts’ questions have a stronger effect when there is more technical spillover potential in the industry. However, the effect is weakened when managers feel pressure to reduce investment in innovation to meet capital markets’ earnings expectations. Overall, we provide evidence that analysts play a direct role in corporate innovation through their questioning of firms’ innovation activities.

Keywords

Analyst coverage, site visits, innovation, R&D expenditures

Discipline

Accounting | Corporate Finance | Technology and Innovation

Research Areas

Corporate Reporting and Disclosure

First Page

1

Last Page

52

Copyright Owner and License

Authors

Comments

Presented at IIMB, 2022 March 4

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