Research on the Effect of Diversification Strategy on Analyst Following in Chinese Listed Companies

This paper did a research on the relationship between diversification strategy and analyst following. Firstly it analyzed how diversification strategy affected on analyst following in theory. And then it did an empirical study between them by two-stage least squares(2SLS), choosing 299 listed companies in Shanghai stock market from 2007 to 2009 as research samples. The result showed that the companies' diversified degree had negative correlation with analyst following significantly. The reason might be that diversified companies are more complex than specialized ones and securities analysts would pay more information cost on the former. So considering their private benefit, analysts will care more about specialized companies than diversified ones. The findings could provide inspiration for company management, investors and other participators in securities market.