Keywords

geographic location, voluntary disclosure, security analysts

Abstract

We examine how the co-location of firms in the same industry affects analysts’ cost of gathering and processing information. We find that when the firms in an analyst’s portfolio are located farther away from other firms in the same industry, the analyst’s portfolio size is smaller and average forecast accuracy is lower. We further find that the additional costs that analysts incur to follow distant firms are amplified when earnings are more difficult to forecast. Lastly, we provide some evidence that managers are more knowledgeable about other firms in the same geographic area. Specifically, managers are more likely to reference firms in their industry that are geographically closer during conference calls. This paper provides additional evidence that the co-location of firms in the same industry not only affects operating and strategic decisions (as documented in the existing literature) but also analysts’ costs of gathering and analyzing information about the firm.

Original Publication Citation

Jennings, J., J. Lee, and D. Matsumoto. 2017. "The Effect of Industry Co-location on Analysts' Information Acquisition Costs," The Accounting Review 92 (6), 103-127.

Document Type

Peer-Reviewed Article

Publication Date

2017

Publisher

The Accounting Review

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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Accounting Commons

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