The impacts of performance relative to analyst forecasts and analyst coverage on firm R&D intensity

Richard John Gentry · Wei Shen

285 citations0/0 files storedStrategic Management Journal

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Auditing, Earnings Management, Governance Corporate Finance and Governance Firm Innovation and Growth

Abstract

Abstract Taking an agency theory perspective of managers as risk averse and self‐interest seeking and focusing on externally generated analyst forecasts as the performance target, we propose that managers tend to cut R&D expenses when they are under pressure to meet analyst forecasts, especially when they face an increase in employment risk after missing the forecasts. We further argue that analyst coverage can serve as an external monitoring mechanism to help contain this agency problem. We test these arguments with data from a sample of U.S. manufacturing firms during the period of 1979 to 2005. Copyright © 2012 John Wiley & Sons, Ltd.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1990Absorptive Capacity: A New Perspective on Learning and Innovation 2001Econometric Analysis of Cross Section and Panel Data 1983Separation of Ownership and Control 1971Industrial Market Structure and Economic Performance.1997Earnings management to avoid earnings decreases and losses 1981Risk Reduction as a Managerial Motive for Conglomerate Mergers 1990Industrial market structure and economic performance

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