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Analysts’ choice of peer companies

Author

Listed:
  • Gus Franco

    (University of Toronto)

  • Ole-Kristian Hope

    (University of Toronto)

  • Stephannie Larocque

    (University of Notre Dame)

Abstract

This is the first large-scale study to examine the peer companies used by sell-side equity analysts in their research reports. Using a unique hand-collected data set, we investigate the relation between peer valuation and peer choice by analysts. We find that analysts on average select peer companies with high valuations and that this effect varies systematically with analysts’ incentives and ability. Our evidence provides partial support for the idea that analysts choose peers strategically. We also find some support for the idea that the selection of peers with high valuations is used in part to justify optimistically skewed target prices and stock recommendations.

Suggested Citation

  • Gus Franco & Ole-Kristian Hope & Stephannie Larocque, 2015. "Analysts’ choice of peer companies," Review of Accounting Studies, Springer, vol. 20(1), pages 82-109, March.
    • Handle: RePEc:spr:reaccs:v:20:y:2015:i:1:d:10.1007_s11142-014-9294-7
    DOI: 10.1007/s11142-014-9294-7
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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