Analysts’ choice of peer companies

Analysts’ choice of peer companies This is the first large-scale study to examine the peer companies used by sell-side equity analysts in their research reports. Using a unique hand-collected data set, we investigate the relation between peer valuation and peer choice by analysts. We find that analysts on average select peer companies with high valuations and that this effect varies systematically with analysts’ incentives and ability. Our evidence provides partial support for the idea that analysts choose peers strategically. We also find some support for the idea that the selection of peers with high valuations is used in part to justify optimistically skewed target prices and stock recommendations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Analysts’ choice of peer companies

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Publisher
Springer Journals
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-014-9294-7
Publisher site
See Article on Publisher Site

Abstract

This is the first large-scale study to examine the peer companies used by sell-side equity analysts in their research reports. Using a unique hand-collected data set, we investigate the relation between peer valuation and peer choice by analysts. We find that analysts on average select peer companies with high valuations and that this effect varies systematically with analysts’ incentives and ability. Our evidence provides partial support for the idea that analysts choose peers strategically. We also find some support for the idea that the selection of peers with high valuations is used in part to justify optimistically skewed target prices and stock recommendations.

Journal

Review of Accounting StudiesSpringer Journals

Published: May 22, 2014

References

  • Peer firms in relative performance evaluation
    Albuquerque, A
  • Peer choice in CEO compensation
    Albuquerque, A; Franco, G; Verdi, R
  • Detecting abnormal operating performance: The empirical power and specification of test statistics
    Barber, BM; Lyon, JD
  • International evidence on analyst stock recommendations, valuations, and returns
    Barniv, R; Hope, O-K; Myring, MJ; Thomas, WB
  • Who is my peer? A valuation-based approach to the selection of comparable firms
    Bhojraj, S; Lee, C
  • The impact of all-star analyst job changes on their coverage choices and investment banking deal flow
    Clarke, J; Khorana, A; Patel, A; Rau, PR

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