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

Ashraf Khallaf (), Feras M. Salama, Musa Darayseh and Eid Alotaibi
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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

Risks, 2024, vol. 12, issue 6, 1-28

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.

Keywords: analyst coverage; reporting biases; expensing vs. capitalization of R&D; uncertainty; scale effects of R&D; investors’ attention (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
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