Financial Markets and Corporate Science: Evidence from Exogenous Changes in Analyst Coverage

Stefano Horst Baruffaldi, Markus Simeth, David Wehrheim

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This paper examines the relationship between financial markets and firms' R&D activities. Specifically, we investigate the role of financial analysts for firms' propensity to engage in corporate science, i.e. the production and dissemination of scientific knowledge. While basic and applied research may enable firms to generate significant private returns, doing research is an inherently risky activity. Therefore, it remains ambiguous how financial market participants perceive and possibly influence firm strategies related to corporate science. Our econometric analysis relies on exogenous decreases in analyst coverage for US publicly listed firms caused by broker house closures and mergers. We provide evidence that reduced analyst coverage increases scientific publication outputs, whereas inventive outcomes decrease or stagnate, and R&D expenditures remain mostly unchanged. At the same time, we find a positive association between corporate science and firm performance indicators. These results are consistent with the view that analysts may encourage firms to engage in myopic behavior at the expense of long-run performance.
Original languageEnglish
Title of host publicationProceedings of the Eightieth Annual Meeting of the Academy of Management
EditorsGuclu Atinc
Number of pages1
Place of PublicationBriarcliff Manor, NY
PublisherAcademy of Management
Publication date2020
Publication statusPublished - 2020
EventThe Academy of Management Annual Meeting 2020: Broadening Our Sight - Virtual
Duration: 7 Aug 202011 Aug 2020
Conference number: 80


ConferenceThe Academy of Management Annual Meeting 2020
Internet address
SeriesAcademy of Management Proceedings

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