The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage

2013/03/19 by FRANÇOIS DERRIEN, François Derrien, AMBRUS KECSKÉS +1 · 7 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Corporate Finance and Governance #Auditing, Earnings Management, Governance #Financial Markets and Investment Strategies

paper · doi:10.1111/jofi.12042

Abstract

ABSTRACT We study the causal effects of analyst coverage on corporate investment and financing policies. We hypothesize that a decrease in analyst coverage increases information asymmetry and thus increases the cost of capital; as a result, firms decrease their investment and financing. We use broker closures and broker mergers to identify changes in analyst coverage that are exogenous to corporate policies. Using a difference‐in‐differences approach, we find that firms that lose an analyst decrease their investment and financing by 1.9% and 2.0% of total assets, respectively, compared to similar firms that do not lose an analyst.

Citations

• Disclosure level and the cost of equity capital.
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