When Do Analysts Add Value? Evidence From Corporate Spinoffs
Source: Harvard Business School
The authors investigate the information content and forecast accuracy of 1,793 analyst reports written around 62 spinoffs - a setting in which analysts' ability to inform investors is potentially very high. They find that analysts pay little attention to subsidiaries about to be spun off even though these subsidiaries constitute a significant part of the parent company operations. Moreover, while the level of detail in analyst research about parent companies is significantly related to EPS and price forecast accuracy, the same is not true for the subsidiaries.