Information transfers from peer firms’ analyst revisions

Abstract

Purpose: This study aims to examine whether analyst revisions on peer firms have information transfer effects on focal firms in the same industry, and whether firm-level rivalry and common analysts affect such information transfer. Design/methodology/approach: This study uses a large sample of US data on listed companies and financial analysts from 1996 to 2021. The authors use ordinary least squares and a short-window event study to test the formulated hypotheses. Findings: The findings show that, on average, focal firm stock returns are positively associated with peer firms’ analyst revisions. However, information transfers from nonrival (rival) peer firms’ analyst revisions are positive (negative). Revisions by common analysts covering both peer and focal firms drive more positive transfers. Furthermore, peer firms’ revisions by common analysts, compared to noncommon analysts, trigger more reactions from focal firm analysts, consistent with investor reactions. Finally, common analyst coverage raises short-term return synchronicity around revisions. Originality/value: This study adds to the information transfer literature by examining the information released by noncorporate entities (i.e. analyst revisions). It also extends our understanding of the roles of analysts, particularly the peer effect and common analysts, in the capital markets. Findings on analyst-driven return interdependencies among peers may interest investors in portfolio construction.