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Common Analysts: Method for Defining Peer Firms

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  • Kaustia, Markku
  • Rantala, Ville

Abstract

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.

Suggested Citation

  • Kaustia, Markku & Rantala, Ville, 2021. "Common Analysts: Method for Defining Peer Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(5), pages 1505-1536, August.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:5:p:1505-1536_1
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    Cited by:

    1. Ha, Sangeun & Ma, Fangyuan & Žaldokas, Alminas, 2024. "Motivating collusion," Journal of Financial Economics, Elsevier, vol. 154(C).
    2. Yi, Biao & Xiang, Xueman, 2023. "Pair analyst coverage and return comovement: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    3. Yi, Biao & Guo, Shuxin, 2022. "Common analyst links and predictable returns: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    4. Xia, Jingjing, 2023. "Redrawing the line: Narrowly beating analyst forecasts and journalists’ co-coverage choices in earnings-related news articles," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    5. Fu, Zheng & Ma, Yechi & Li, Suyang & Qiao, Lu, 2023. "Peer performance and the asymmetric timeliness of earnings recognition," International Review of Financial Analysis, Elsevier, vol. 85(C).
    6. Jiafeng Gu, 2024. "Peer influence, market power, and enterprises' green innovation: Evidence from Chinese listed firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 108-121, January.
    7. Patrick J. Callery, 2024. "Strategic motivations for corporate social responsibility: profitability or legitimacy?," Journal of Business Economics, Springer, vol. 94(6), pages 947-974, August.
    8. Shen, Xieyang & Yang, Sijie & Chen, Yulin & Zeng, Jianyu, 2022. "How does economic policy uncertainty influence managers' learning from peers' stock prices? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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