Analysts’ choice of peer companies

Gus De Franco, Ole-Kristian Hope, Stephannie Larocque

Review of Accounting Studies · 2015 · Volume 20 · Issue 1

Abstract

This is the first large-scale study to examine the peer companies used by sell-side equity analysts in their research reports. Using a unique hand-collected data set, we investigate the relation between peer valuation and peer choice by analysts. We find that analysts on average select peer companies withhigh valuationsand that this effect varies systematically with analysts’ incentives and ability. Our evidence provides partial support for the idea that analysts choose peers strategically. We also find some support for the idea that the selection of peers with high valuations is used in part to justify optimistically skewed target prices and stock recommendations.

Keywords

Analysts, Comparable, Peer, Valuation

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