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Abstract
In this study, we examine the effect of strategic alliance formation on analysts’ forecasting performance. We find that after a focal firm forms an alliance, the analysts who follow the focal firm’s alliance partners (i.e. alliance analysts) exhibit superior forecasting performance for the focal firm than analysts who do not follow the focal firm’s alliance partners (i.e. non-alliance analysts). The difference in forecasting performance is greater when the focal firm exhibits greater information asymmetry or when an alliance is more important to the focal firm, especially for alliances across industries. These results are not driven by analyst ability or previously documented economic links between firms. Alliance analysts’ forecasts are also timelier and more informative than non-alliance analysts’ forecasts. After the formation of an alliance, analysts are also more likely to initiate coverage of a focal firm’s alliance partners than of other firms. Overall, our evidence is consistent with the notion that information spillover among strategic alliance partners is critical to analysts’ performance. We thus provide novel evidence that the benefits of strategic alliances extend beyond partner firms to other capital market participants.
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