This paper exploits exogenous shocks on a firm’s coverage by stock market analysts, to investigate analysts’ influence on resource redeployment within multi-business firms. We expect that firms might be constrained in their ability to capitalize on redeployment opportunities by the presence and pressure of external governance forces such as stock market analysts. This is because strategies emphasizing internal resource markets magnify asymmetric information between a firm’s management and external analysts, thereby complicating evaluation by the financial community, and ultimately disincentivizing their use by corporate headquarters. Consistent with these ideas we find that the number of analysts following a firm’s stock is negatively related to resource redeployment and that, vice versa, losing an analyst increases the amount of resources that a firm moves across its businesses. Moreover, we demonstrate that resource redeployment in response to analyst coverage loss is value creating and increases firms’ strategic uniqueness.
