On the Determinants of International Analyst Research Coverage

In this paper, we study economic forces and constraints that shape analyst research coverage along country and sector dimensions. Our results support the hypothesis that analyst portfolios are structured to capture economies of scale in information acquisition and production. Specifically, the likelihood of an analyst specializing by country increases as the importance of the country factor in explaining stock return variability rises. Similarly, the likelihood of specialization by sector increases as the sector factor strengthens. We also find that higher country equity market capitalization increases the likelihood of country specialization while a larger total equity market capitalization of a sector in a particular country (country-sector market capitalization) increases the likelihood that analysts cover firms in a single sector. Finally, institutional features that influence the cost and value of information production also impact analyst specialization.