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Cross-Sectional Determinants of Analyst Coverage for R&D Firms

Author

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  • Ashraf Khallaf

    (Department of Accounting, School of Business Administration, American University of Sharjah, Sharjah 26666, United Arab Emirates)

  • Feras M. Salama

    (Department of Accounting, School of Business Administration, American University of Sharjah, Sharjah 26666, United Arab Emirates)

  • Musa Darayseh

    (Department of Accounting, School of Business Administration, American University of Sharjah, Sharjah 26666, United Arab Emirates)

  • Eid Alotaibi

    (Department of Accounting, School of Business Administration, American University of Sharjah, Sharjah 26666, United Arab Emirates)

Abstract

Prior research document a positive association between analyst coverage and R&D. However, they do not investigate what particular attribute of R&D leads to this positive association. In this study we aim to fill the gap in the extant literature and explore the cross-sectional determinants of the association between R&D and analyst coverage. We investigate four cross-sectional determinants: reporting biases arising from expensing of R&D compared to capitalization of R&D, uncertainty associated with R&D, investors’ attention, and scale effects of R&D. We find that while reporting biases and uncertainty decrease analyst coverage for R&D firms, investors’ attention and scale effects of R&D increase analyst coverage. Furthermore, we find that the positive association between R&D and analyst coverage documented by Barth et al. is fully explained by scale effects of R&D.

Suggested Citation

  • Ashraf Khallaf & Feras M. Salama & Musa Darayseh & Eid Alotaibi, 2024. "Cross-Sectional Determinants of Analyst Coverage for R&D Firms," Risks, MDPI, vol. 12(6), pages 1-28, June.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:6:p:98-:d:1416992
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    References listed on IDEAS

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