Does Analyst Coverage Encourage Firm Innovation? Evidence from Korea
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This paper examines whether analyst coverage affects firm innovation in an economy dominated by family-controlled business groups. Using a sample of Korean publicly traded firms from 2010 to 2018, we find that an increase in financial analysts leads covered firms to cut investments in corporate venture capital and R&D. Moreover, reduction in innovation through acquisitions is more pronounced when analysts are from chaebol (family-controlled large business group) affiliated brokerages. These findings suggest that unlike in U.S., analyst coverage puts pressure on managers to meet the analysts’ forecasts, thereby impeding innovation under such environment.
Abstract
This paper examines whether analyst coverage affects firm innovation in an economy dominated by family-controlled business groups. Using a sample of Korean publicly traded firms from 2010 to 2018, we find that an increase in financial analysts leads covered firms to cut investments in corporate venture capital and R&D. Moreover, reduction in innovation through acquisitions is more pronounced when analysts are from chaebol (family-controlled large business group) affiliated brokerages. These findings suggest that unlike in U.S., analyst coverage puts pressure on managers to meet the analysts’ forecasts, thereby impeding innovation under such environment.
참고문헌 (30)
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