This paper examines whether analyst coverage affects firm innovation in an economy dominated by family-controlled business groups. Using a sample of Korean publicly traded firms from 2010-2018, we find that an increase in financial analysts results in lower level of R&D. Especially, unlike in U.S., firms with more analyst coverage tend to cut investments in corporate venture capital. Moreover, the reduction in R&D is more pronounced when analysts are from other chaebol (family-controlled large business group) affiliated brokerages. These findings suggest that analyst coverage may function more as a “pressure” mechanism than “information” mechanism when information environment is less transparent.

Key words: corporate venture capital, financial analysts, innovation, acquisition, R&D
JEL code: G24, G34, O31