The Effect Of Analyst Coverage On Corporate Decisionmaking

Many recent press articles lamenting "short-termism" in corporate America blame research analysts for focusing on quarterly earnings.  In a recent paper titled, "Analyst Coverage and the Quality of Corporate Investment Decisions" authors Thomas To, Marco A. Navone and Eliza Wu demonstrate a causal connection between analyst coverage and good investment decisions.  The authors assess the impact of financial analyst coverage on corporate investments by evaluating corporate total factor productivity (or efficiency gains) for US listed companies from 1991 to 2013.  Their "information hypothesis" postulates that analyst coverage delivers information about companies to the market and may therefore provide those companies with access to funding that permits companies to make capital expenditures and other investments.  Also, as a result of analysts monitoring companies and revealing negative information and assessments to the market, it ensures that company management's will