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Long-term growth in profits depends significantly on firms’ investment in innovation activities. However, firms may not invest in innovation in an optimal way. Some distortions arise because the decisions as to whether and how to invest in innovation are not only affected by their long-term expected benefits but also by other considerations.  A recent study conducted by researchers from the Universidad Carlos III de Madrid (UC3M), in collaboration with the Universidad Autónoma de Barcelona (UAB), explores the role of financial analysts on firms’ innovation strategy and outcome. This study concludes that financial analysts can help companies to invest more efficiently in innovation and therefore produce a higher number of patents and of better-quality.Research videoReference:Bing Guo, David Pérez-Castrillo, Anna Toldrà-Simats. 2019. Firms’ innovation strategy under the shadow of analyst coverage. Journal of Financial Economics, 131(2), 456-483.  https://doi.org/10.1016/j.jfineco.2018.08.005AbstractWe study the effect of analyst coverage on firms’ innovation strategy and outcome. Using data of US firms from 1990 to 2012, we find evidence that an increase in financial analysts leads firms to cut research and development expenses, acquire more innovative firms, and invest in corporate venture capital. We attribute the first result to the effect of analyst pressure and the others to the informational role of analysts. We also find that financial analysts encourage firms to make more efficient investments related to innovation, which increases their future patents and citations and influences the novelty of their innovations.