{"id":9510,"date":"2019-11-08T00:00:00","date_gmt":"2019-11-07T23:00:00","guid":{"rendered":"https:\/\/business.uc3m.es\/\/companies-with-more-financial-analysts-produce-more-and-better-quality-patents\/"},"modified":"2019-11-08T00:00:00","modified_gmt":"2019-11-07T23:00:00","slug":"companies-with-more-financial-analysts-produce-more-and-better-quality-patents","status":"publish","type":"post","link":"https:\/\/business.uc3m.es\/en\/companies-with-more-financial-analysts-produce-more-and-better-quality-patents\/","title":{"rendered":"Companies with more Financial Analysts Produce more and Better-Quality Patents"},"content":{"rendered":"<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\">Long-term growth in profits depends significantly on firms\u2019 investment in innovation activities. However, firms may not invest in innovation in an optimal way. Some distortions arise because the decisions as to whether and how to invest in innovation are not only affected by their long-term expected benefits but also by other considerations. A recent study conducted by researchers from the Universidad Carlos III de Madrid (UC3M), in collaboration with the Universidad Aut\u00f3noma de Barcelona (UAB), explores the role of financial analysts on firms\u2019 innovation strategy and outcome. This study concludes that financial analysts can help companies to invest more efficiently in innovation and therefore produce a higher number of patents and of better-quality.     <\/span><\/div>\n<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\"><br \/><\/span><\/div>\n<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\">There are two different effects through which financial analysts influence firms\u2019 innovation activity. On the one hand, there is an information effect. Analysts collect firms\u2019 information and provide it to the investors, for instance, by writing reports about company activities. By reducing the information asymmetries between firms and the market, analyst coverage can increase CEOs\u2019 incentives to invest in innovation more efficiently. On the other hand, there is a pressure effect. Analysts discipline managers\u2019 behavior through issuing periodic earnings forecasts. Missing the earnings forecasts is usually punished by investors. Since investments in innovation do not usually generate short-term income, managers have an incentive to cut expenditures in innovation when they have the pressure to meet analysts\u2019 earnings targets. \u201cThere is a tension because financial analysts can have a positive as well as a negative effect on firms\u2019 innovation decisions,\u201d as explained by one of the authors, Anna Toldr\u00e0-Simats, from the Business Administration Department of UC3M.         <\/span><\/div>\n<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\"><br \/><\/span><\/div>\n<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\">In the article, recently published in the Journal of Financial Economics, the authors identify the presence of these two effects and determine which effect dominates. \u201cThe positive information effect seems to dominate the negative pressure effect\u201d, as highlighted by Anna Toldr\u00e0-Simats. \u201cWe have found that companies followed by more financial analysts are more likely to acquire other innovative companies, make corporate venture capital (CVC) investments, and reduce internal R&amp;D expenses with little value added, which leads to a more efficient allocation of R&amp;D resources\u201d, adds another author, <span class=\"il\">Bing<\/span> Guo, also from the Business Administration Department of UC3M.   <\/span><\/div>\n<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\"><br \/><\/span><\/div>\n<div style=\"color: rgb(34, 34, 34); font-family: Arial, Helvetica, sans-serif; font-size: small;\"><span style=\"font-family: Arial; font-size: 8pt; white-space: pre-wrap; text-align: justify;\">Professor David P\u00e9rez Castrillo, the other co-author from UAB, indicates that \u201cour study suggests that the disciplinary role of financial analysts leads companies to externalise their innovation activities, to make them more visible to the market. A certain level of supervision leads companies to make efficient decisions, also in terms of innovation\u201d. The study concludes that financial analysts lead to a better allocation of companies\u2019 R&amp;D resources, an increase in the number of patents, and an improvement in their quality. <\/span><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Long-term growth in profits depends significantly on firms\u2019 investment in innovation activities. However, firms may not invest in innovation in an optimal way. Some distortions arise because the decisions as to whether and how to invest in innovation are not only affected by their long-term expected benefits but also by other considerations. A recent study [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":8461,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[49],"tags":[],"class_list":["post-9510","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/posts\/9510","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/comments?post=9510"}],"version-history":[{"count":0,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/posts\/9510\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/media\/8461"}],"wp:attachment":[{"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/media?parent=9510"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/categories?post=9510"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/business.uc3m.es\/en\/wp-json\/wp\/v2\/tags?post=9510"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}