Many recent press articles lamenting "short-termism" in corporate America blame research analysts for focusing on quarterly earnings. In a recent paper titled, "Analyst Coverage and the Quality of Corporate Investment Decisions" authors Thomas To, Marco A. Navone and Eliza Wu demonstrate a causal connection between analyst coverage and good investment decisions. The authors assess the impact of financial analyst coverage on corporate investments by evaluating corporate total factor productivity (or efficiency gains) for US listed companies from 1991 to 2013. Their "information hypothesis" postulates that analyst coverage delivers information about companies to the market and may therefore provide those companies with access to funding that permits companies to make capital expenditures and other investments. Also, as a result of analysts monitoring companies and revealing negative information and assessments to the market, it ensures that company management's will undertake the most productive projects. In this latter case, analysts effectively serve as monitors prompting companies to improve capital allocation efficiency. The study also shows that a reduction in analyst coverage reduces capital expenditures and institutional monitoring. In this light, perhaps the claims that analysts contribute to short-termism should be reevaluated.
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