Intra-Firm Knowledge Sharing in the Investment Research Industry

Abstract

We study inter-department knowledge sharing in a setting where the benefits are potentially significant for the firm and the capital market, but so are the frictions impeding it. The benefits from knowledge sharing between debt and equity research departments can be substantial, especially when a debt and an equity analyst cover the same corporate entity; yet these departments vigorously compete for internal resources and external clients, impeding knowledge sharing. Using hand-collected data on equity analyst access to in-house debt research expertise, we find significant benefits to equity analysts in terms of their ability to forecast cash flows and anticipate credit rating downgrades. Importantly, these benefits only exist in the presence of a collaborative brokerage culture or debt-equity analyst collocation, consistent with these factors promoting knowledge sharing in the investment research industry.