Analyst Coverage and Innovation : Evidence from New Product Introduction

This paper investigates the relationship between analyst coverage and new product introduction. Using information on consumer-packaged goods, I find that higher analyst coverage leads to more new product introductions. To establish causality, I exploit brokerage mergers and closures to identify exogenous loss in analyst coverage. Affected firms experience reduction in incremental product introduction immediately and reduction in breakthrough new product production in a staggered fashion. Further evidence shows that firms reduce equity raising and pay-for-performance sensitivity around analyst shocks. My findings suggest that analysts spur product innovation, and that the timing of firms' response varies by the significance of innovation