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Analyst Specialization and Conglomerate Stock Breakups

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  • Stuart C. Gilson
  • Paul M. Healy
  • Christopher F. Noe
  • Krishna G. Palepu

Abstract

This paper examines whether firms emerging from conglomerate stock breakups are able to affect the types of financial analysts that cover their firms as well as the quality of information generated about their performance. Our sample comprises 103 focus‐increasing spin‐offs, equity carve‐outs, and targeted stock offerings between 1990 and 1995. We find that, after these transactions, sample firms experience a significant increase in coverage by analysts that specialize in subsidiary firms’ industries, and a 30–50% increase in analyst forecast accuracy for parent and subsidiary firms. The improvement in forecast accuracy is partially attributable to expanded disclosure. However, forecast improvements for specialists exceed those for non‐specialists, leading us to conclude that corporate focus can facilitate improved capital market intermediation by financial analysts with industry expertise.

Suggested Citation

  • Stuart C. Gilson & Paul M. Healy & Christopher F. Noe & Krishna G. Palepu, 2001. "Analyst Specialization and Conglomerate Stock Breakups," Journal of Accounting Research, Wiley Blackwell, vol. 39(3), pages 565-582, December.
    • Handle: RePEc:bla:joares:v:39:y:2001:i:3:p:565-582
    DOI: 10.1111/1475-679X.00028
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