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Lecture on "Analyst Information Production, Internal Capital Allocation, and Conglomerate Valuation"
DateandTime: 2018-06-10 07:47:11

Speaker: Re-Jin Guo, Professor, College of Business Administration, University of Illinois at Chicago, USA

Date: June 11, 2018

Time: 9:00 a.m.

Location: 423 Lecture Hall, Block B, Zhixin Building, Central Campus

Sponsor: the School of Economics


Analysts are specialists in forecasting industry and market sector trends. Yet there is little evidence on their role as information producers in shaping major corporate strategies. Focusing on conglomerate firms in which CEOs are less informed about segment investment opportunities, this study examines whether analysts’ information production improves conglomerates internal capital market (ICM) efficiency and corresponding market valuation. Using brokerage mergers as exogenous shocks in the analyst industry, we provide causal evidence that a significant decline in ICM efficiency resulted from the reduction of analyst coverage. The effect is more pronounced when conglomerate CEOs face higher internal information barriers, have less firm-specific knowledge, and when lost analysts are industry specialists. Additional analysis shows that the effect of analyst coverage reduction on ICM efficiency is not driven by weakened external monitoring or increased cost of capital and is robust to a wide array of identification strategies. We further demonstrate a post-event decrease in conglomerate valuation, primarily driven by firms with relatively larger decline in ICM efficiency. Overall, our study provides novel evidence that analysts help conglomerate CEOs gain segment (industry-related) information, which cannot be otherwise obtained internally due to agency conflicts.


Re-Jin Guo is Professor of Finance at College of Business Administration, University of Illinois at Chicago. Her research interests include analyses of the market of initial public offerings, cost of capital estimates, corporate governance, large shareholder ownership, as well as valuation of firm’s innovation capability. Her research has been published at Journal of Finance, Journal of Financial Economics, Journal of Accounting Research, and Journal of American Statistical Association; and has been presented at various professional meetings, the Security Exchange Commission, as well as the Shanghai Stock Exchange. Re-Jin currently serves as an associate editor at Review of Pacific Basin Financial Markets and Policies and at the editorial review board of the Corporate Governance: An International Review. She was an associate editor at Journal of Business, Economics, and Statistics (2012-2016), a Visiting Financial Economist at the Research Center of Shanghai Stock Exchange in the summer of 2006; and a Visiting Professor at the Department of Finance of Fudan University in 2014-2017.

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Edited by: Xing Chenyang, Song Yijun

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