You can’t have it both ways: An unintended consequence of corporate site visits on non-visited firms

Abstract

Prior work suggests that financial analysts may gain an information advantage regarding visited firms through corporate site visits. We use a novel design to examine the impact of site visits on non-visited firms that are concurrently followed by the analysts. We propose a limited attention hypothesis predicting that site visits reduce forecast accuracy for non-visited firms. We find that analysts’ forecast accuracy for non-visited firms is negatively affected by site visits, and the negative effect is accentuated by the complexity of visited firms’ business operations and analysts’ busyness, supporting the limited attention hypothesis. Further analysis shows that site visits increase analysts’ optimistic bias towards non-visited firms. This study is the first to investigate non-visited firms and to reveal the unintended consequences of site visits, complementing prior studies that predominantly focus on visited firms.