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

Richard J. Gentry, Wei Shen

Research output: Contribution to journalReview articlepeer-review

76 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)121-130
Number of pages10
JournalStrategic Management Journal
Volume34
Issue number1
DOIs
StatePublished - Jan 1 2013

Keywords

  • R&D intensity
  • agency theory
  • analyst forecasts
  • corporate governance
  • managerial incentives

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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