Do Analysts Add Value When They Most Can? Evidence from Corporate Spin-offs

Abstract

This article investigates how securities analysts help investors understand the value of diversification. By studying the research that analysts produce about companies that have announced corporate spin-offs, we gain unique insights into how analysts portray diversified firms to the investment community. We find that while analysts' research about these companies is associated with improved forecast accuracy, the value of their research about the spun-off subsidiaries is more limited. For both diversified firms and their spun-off subsidiaries, analysts' research is more valuable when information asymmetry between the management of these entities and investors is higher. These findings contribute to the corporate strategy literature by shedding light on the roots of the diversification discount and by showing how analysts' research enables investors to overcome asymmetric information.


Full Article

• Emilie Feldman, S. Gilson, B. Villalonga (2014), Do Analysts Add Value When They Most Can? Evidence from Corporate Spin-offs,Strategic Management Journal, 35 (10), 1446 - 1463. 

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The Wharton School of the University of Pennsylvania

World's first collegiate business school, established in 1881. Largest and one of the most published business school faculty, with 225+ standing and associate members.

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