Exploring the influence of diversification degree on analysts’ coverage preference and forecast competence
Date Issued
2015
Date
2015
Author(s)
Cheng, Chia-Yi
Abstract
Different from extant studies, which focus on the how the number of SIC codes of a company on its covering analyst earnings forecast ability, this study investigates price forecast ability as well as the relationship between diversification degree and analysts’ price and long-term growth forecast frequency. Moreover, in contrast with extant studies, which use industry concentration to measure diversification, this study adopts the measure of mean segment return covariability. The regression results show that more diversified companies appear to attract fewer analysts to provide price or growth forecasts. Although diversification appears to add to analyst difficulties to do forecasts and they therefore become less willing to follow such companies, analysts make more accurate target price forecasts for diversified companies. In sum, while understanding different industries may require more effort, it would not jeopardize analyst ability to predict stock price.
Subjects
diversification
price forecast frequency
growth forecast frequency
price forecast accuracy
Type
thesis
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