Abstract

In recent years, key market intermediaries, such as financial analysts, are increasingly interested in the digitization of non-IT firms. Motivated by this phenomenon, I use analysts’ digital questions in quarterly earnings conference calls to study how analysts think about the digitization of non-IT firms and how their views shape future investment in advanced digital technologies (AI). Consistent with analysts functioning as effective information analyzers, I find that analysts’ interest in digitization is based on factors that drive greater digitization, namely:

• (1) whether the firm is more likely to be suited to AI technologies,
• (2) whether the firm has executives or board members with experience in digital technologies.

Moreover, analysts also appear to play a monitoring role when firms are over-investing in AI, as I find that analysts tend to ask more negative and competition-related questions in these situations. On the consequences of analysts’ interest in digitization, I find that firms with more digital questions from analysts invest more in AI (as measured by job postings with AI skills) in the following year. Further cross-sectional analyses suggest that analysts are actively shaping AI investment as the positive relationship is stronger when there is no managerial or industry-wide analyst disclosure on digital topics, or when the firm is not currently investing in AI. Finally, I find that the positive relationship is also stronger when firms are under-investing in AI technologies. Thus overall, my findings suggest that financial analysts tend to play a positive governance role in shaping non-IT firms’ investment in AI technologies.

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