TY - JOUR
T1 - Common Analysts
T2 - Method for Defining Peer Firms
AU - Kaustia, Markku
AU - Rantala, Ville
N1 - Funding Information:
We thank anonymous referees, Jan Bartholdy, Jonathan Berk, Thierry Foucault, Guojin Gong, Jarrad Harford (the editor), Gerard Hoberg, Hans Hvide, Timo Korkeamäki, Alexander Ljungqvist, Michelle Lowery, and Gordon Phillips, as well as the seminar participants at the 2014 American Finance Association and at the 2013 American Accounting Association, and the 2013 Nordic Finance Network workshop for comments. Rantala acknowledges financial support from the Finnish Foundation for Advancement of Securities Market.
Publisher Copyright:
© 2021 Cambridge University Press. All rights reserved.
PY - 2021/8
Y1 - 2021/8
N2 - We develop a method for defining groups of peer firms on the basis of joint analyst coverage. Besides industry boundaries, analysts' coverage choices reflect other aspects of firm relatedness such as business model. We find that the analyst-based method produces substantially more homogeneous groups of firms compared to common industry classifications, and has a number of other desirable properties. The paper has two broader implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new positive information production externality generated by the institution of security market analysis.
AB - We develop a method for defining groups of peer firms on the basis of joint analyst coverage. Besides industry boundaries, analysts' coverage choices reflect other aspects of firm relatedness such as business model. We find that the analyst-based method produces substantially more homogeneous groups of firms compared to common industry classifications, and has a number of other desirable properties. The paper has two broader implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new positive information production externality generated by the institution of security market analysis.
UR - http://www.scopus.com/inward/record.url?scp=85090157478&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85090157478&partnerID=8YFLogxK
U2 - 10.1017/S0022109020000514
DO - 10.1017/S0022109020000514
M3 - Article
AN - SCOPUS:85090157478
VL - 56
SP - 1505
EP - 1536
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
IS - 5
ER -