The Influence of Analysts on Innovation: An Evolutionary View of Evaluative Frames

Our process theory explains how securities analysts, as important intermediaries in public equity markets, both enable and constrain innovation in the firms they cover. We consider evolution in analyst "evaluative frames" – the categories, narratives, and schemas that underlie assessments of firms and explanations of stock valuations – to depict the shifts in analyst influence on different types of innovation. We describe mechanisms underlying the creation of new analyst frames sparked by nascent firms engaging in new to the world products, technologies, and business models, followed by processes of frame convergence and institutionalization. While new frames can enable non-incremental innovations in nascent firms, institutionalized frames constrain both new and established firms to incremental innovation in familiar products, technologies, and business models. Our theory suggests that analyst persistence in applying institutionalized frames can further dampen and even prevent non-incremental innovation in established firms, even when it is necessary for adaptation. Our theory addresses debates in prior literature about analyst influence on innovation and provides deeper insights into the influences of equity markets on firm innovation. Our work also suggests possible ways that firms pursuing innovation can seek to delay or prevent institutionalization in analyst frames to alleviate constraints from equity markets.