Corporate Focus and the Benefits from More Specialized Analyst Coverage
Description:... This paper investigates whether stock breakups, which typically increase corporate focus, have capital market consequences as a result of more specialized analyst coverage. Using a sample of 143 spin-offs, equity carve-outs, and targeted stock offerings between 1990 and 1995, we find that breakups are accompanied by an increase in analyst coverage and by a significant increase in analyst turnover, particularly for the breakup subsidiaries. This appears to be primarily due to the assignment by brokerage houses of new industry specialists to follow the breakup subsidiaries. There is also a marked increase in analysts earnings forecast accuracy and in consensus among analysts about their forecasts following the breakup. Increases in analyst earnings forecast accuracy are greatest for firms that are successful in attracting new analysts following breakups. Finally, there is weak evidence that increases in the sample firms' market-to-book ratios after breakups are associated with improvements in analyst forecast accuracy.
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