Analysts' site visits and corporate innovation

• Main Authors: CHENG, Qiang, WANG, Yutao, YANG, Holly I., ZHANG, Zheyuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Analyst coverage; site visits; innovation; R&D expenditures; Accounting; Corporate Finance; Technology and Innovation
• Online Access: https://ink.library.smu.edu.sg/soa_research/2012; https://ink.library.smu.edu.sg/context/soa_research/article/3039/viewcontent/Analysts_Site_Visits_Corporate_Innovation.pdf
• Institution: Singapore Management University

While prior studies examine whether analyst coverage affects corporate innovation, there is little research on the mechanism through which financial analysts affect corporate innovation. In this paper, we examine whether and how analysts’ questions about innovation affect corporate innovation activities and outcomes. Using a sample of corporate site visits in China, we find that when analysts ask questions about innovation during site visits, the firms invest more in research and development and file more patent applications in the future. This association is stronger when analysts have a greater information and monitoring role. In addition, consistent with knowledge diffusion between firms, analysts’ questions have a stronger effect when there is more technical spillover potential in the industry. However, the effect is weakened when managers feel pressure to reduce investment in innovation to meet capital markets’ earnings expectations. Overall, we provide evidence that analysts play a direct role in corporate innovation through their questioning of firms’ innovation activities.