Finance Seminar（2018-02）

Topic: Analyst Coverage and New Product Introduction: Evidence from Consumer Packaged Goods

Speaker: Fangzhou Liu, Kelley School of Business, Indiana University

Time: Wednesday, 24 January, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

Existing literature has studied corporate innovation using patent counts and patent citations as outcome variables. In this paper, I measure corporate innovation by the introduction of breakthrough products and I re-examine the effect of analyst coverage on innovation. Previous study (e.g. He and Tian, 2013), using patent counts and patent citations as measures on innovation, has documented a negative relation between analyst coverage and innovation. In contrast, I find a positive relation between analyst coverage and the number of breakthrough products introduced by a firm. The new measure on innovation– the introduction of breakthrough products–is different from patents since not all new products are patented, and not all patents are transformed into new products. The positive effect of analyst coverage is robust to a firm fixed effects model and a quantile regression model. I alleviate endogeneity concerns by using coverage terminations due to brokerage mergers and closures as an instrument on analyst coverage. Finally, I show that the introduction of breakthrough products is positively related to firms’ future profitability and firm value. Taken together, my result suggests that there is a monitoring benefit of stock analysts.

Introduction:

Fangzhou Liu is a Ph.D. candidate in Business - Major: Finance at Kelley School of Business, Indiana University. Her main research interests are Empirical Corporate Finance, Financial Intermediation, Innovation, New Product Introduction.

Your participation is warmly welcomed!