It's not how many but how different: The effect of investor dissimilarity on analyst coverage

This study extends research on organizational affiliations and market signals to test the proposition that affiliations with or endorsements from dissimilar others may generate disproportionately strong signals to which important organizational audiences are likely to attend. I develop and test my argument in the context of the market for analyst coverage. Specifically, I propose that firms’ affiliations with dissimilar institutional investors are beneficial when it comes to garnering analyst attention in part because they (1) are unexpected, and as a result more salient, and because they (2) help to alleviate the signal independence problem. Results confirm the importance of investor dissimilarity: holding constant the number of institutional investors firms have, increasing dissimilarity among investors has a robust positive effect on subsequent analyst coverage, both between firms in a cross section and within firms across time. Implications for research on analyst coverage, organizational affiliations, and signaling and attention are discussed.