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Do Analysts Influence Corporate Financing and Investment?

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  • John A. Doukas
  • Chansog (Francis) Kim
  • Christos Pantzalis

Abstract

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.

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  • John A. Doukas & Chansog (Francis) Kim & Christos Pantzalis, 2008. "Do Analysts Influence Corporate Financing and Investment?," Financial Management, Financial Management Association International, vol. 37(2), pages 303-339, June.
    • Handle: RePEc:bla:finmgt:v:37:y:2008:i:2:p:303-339
    DOI: 10.1111/j.1755-053X.2008.00014.x
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    7. Liang, Woan-lih, 2016. "Sensitivity to investor sentiment and stock performance of open market share repurchases," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 75-94.
    8. Galanti, Sébastien & Leroy, Aurélien & Vaubourg, Anne-Gaël, 2022. "Investment and access to external finance in Europe: Does analyst coverage matter?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    9. Xede, James & Simon Peter Dak-Adzaklo, Cephas & Ofosu, Emmanuel & Wise Dodzidenu Adza, Solomon, 2023. "Competition laws, external financing and investment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    10. To, Thomas Y. & Navone, Marco & Wu, Eliza, 2018. "Analyst coverage and the quality of corporate investment decisions," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 164-181.
    11. Jarosław Kubiak, 2011. "Metody badania asymetrii informacji w przedsiębiorstwie w zakresie alokacji kapitału," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 45-67.
    12. Radu Titus MARINESCU & Madalina Gabriela ANGHEL & Aurelian DIACONU, 2016. "Theoretical and Practical Aspects of Analysis of Investment’s Sensitivity," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(8), pages 37-47, August.
    13. Chan, Konan & Guo, Re-Jin J. & Wang, Yanzhi A. & Yang, Hsiao-Lin, 2022. "Organization capital and analyst coverage," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 81-105.
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