A Plausible Way to Induce Interfirm Knowledge Spillovers Based on Informal Networks: Evidence from Analysts

By documenting information flows from analysts to covered firms, this paper provides robust evidence that firms connected by informal networks of shared analysts exhibit greater knowledge spillovers, and are largely influenced by firms' absorptive capacity. In cross-sectional tests, we demonstrate that the spillover is greater for analysts with higher industry specialization and forecast activity intensity. In addition, the effect varies with firm pairs' industry homogeneity and geographic proximity. Finally, by focusing on the real effect of shared analysts on corporate innovation, we find that shared analysts can facilitate the covered firms' upward convergence in R&D expenditure. Collectively, this paper provides emerging capital market evidence for the function of informal networks based on shared analysts regarding firms' innovation decisions through knowledge spillovers.