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Jack of all trades or master of one? Analyst specialization and corporate investment efficiency

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  • Xu, Yi
  • Jiang, Linxi
  • Wan, Yanqi

Abstract

Why do firms invest heavily in analyst coverage yet exhibit such varied responses to expert recommendations? We examine this puzzle by investigating how analyst industry experience influences corporate investment efficiency across different organizational contexts. Using comprehensive firm-level data, we construct dual measures of analyst expertise combining industry focus intensity and experience tenure to assess their impact on investment outcomes. Our analysis reveals that analyst industry experience significantly enhances investment efficiency, with the effect operating through two distinct mechanisms: alleviating financing constraints and improving information transparency. However, we document substantial heterogeneity in these relationships. Firms with higher institutional ownership exhibit significantly stronger responses to analyst expertise, while the beneficial effects prove markedly weaker among state-owned enterprises compared to private firms. Through robustness tests including propensity score matching and instrumental variable estimation, we confirm these patterns persist across alternative specifications. The findings suggest that organizational characteristics and governance structures moderate how effectively firms translate external expertise into superior capital allocation decisions. Our results contribute to understanding the boundary conditions of analyst influence and highlight why identical expert knowledge can yield divergent investment outcomes depending on how firms respond to external monitoring and information processing.

Suggested Citation

  • Xu, Yi & Jiang, Linxi & Wan, Yanqi, 2025. "Jack of all trades or master of one? Analyst specialization and corporate investment efficiency," Finance Research Letters, Elsevier, vol. 85(PE).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pe:s1544612325015818
    DOI: 10.1016/j.frl.2025.108327
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    References listed on IDEAS

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