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<p>We address how analysts affect intangible investment using a novel measure – corporate political investments (CPI) – that can reduce the cost of capital. Following the call for research from Roychowdhury, Shroff, and Verdi (2019), our study lends support to the cost of capital hypothesis that argues analyst coverage reduces financing costs. We find that analyst coverage is negatively related to CPI due to a cost of capital substitution effect between the two, in contrast to the hypothesis that analyst coverage reduces investor moral hazard risks and induces higher CPI. These results occur in firms facing higher financial constraints and greater competition, but with no signs of earnings management, thus eliminating explanations based on agency-related managerial preferences or myopic pressure. We also find that analyst coverage is positively related to firm value and non-patent-based measures of innovative efficiency, also rejecting myopic pressure. Our findings suggest analyst coverage can alleviate concerns over the <i>Citizens United</i> 2010 Supreme Court ruling allowing potentially unlimited political contributions, which Congress proposed overturning in 2023.</p>

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Analyst effects on intangible investment: evidence from corporate political investments

  • 期刊论文

  • 发表日期：

    2026年4月16日

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  • Dae Woung Choi,
  • Douglas O. Cook,
  • Jinwook Hong,
  • M. Tony Via

摘要

We address how analysts affect intangible investment using a novel measure – corporate political investments (CPI) – that can reduce the cost of capital. Following the call for research from Roychowdhury, Shroff, and Verdi (2019), our study lends support to the cost of capital hypothesis that argues analyst coverage reduces financing costs. We find that analyst coverage is negatively related to CPI due to a cost of capital substitution effect between the two, in contrast to the hypothesis that analyst coverage reduces investor moral hazard risks and induces higher CPI. These results occur in firms facing higher financial constraints and greater competition, but with no signs of earnings management, thus eliminating explanations based on agency-related managerial preferences or myopic pressure. We also find that analyst coverage is positively related to firm value and non-patent-based measures of innovative efficiency, also rejecting myopic pressure. Our findings suggest analyst coverage can alleviate concerns over the Citizens United 2010 Supreme Court ruling allowing potentially unlimited political contributions, which Congress proposed overturning in 2023.