Do Financial Analysts Restrain Insiders' Informational Advantage?

Ellul, Andrew; Panayides, Marios A.

doi:10.2139/ssrn.1133084

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Do Financial Analysts Restrain Insiders' Informational Advantage?

68 Pages Posted: 17 May 2008 Last revised: 25 Jan 2016

See all articles by Andrew Ellul

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance; University of Oklahoma

There are 3 versions of this paper

Date Written: January 23, 2016

Abstract

By collecting and disseminating price sensitive information, financial analysts should reduce firm insiders’ informational advantage with a consequent impact on trading dynamics and market quality. We empirically examine the impact of complete analysts’ coverage termination on stocks’ liquidity, price discovery and profitability of insider trading. Termination leads to deteriorating liquidity and price efficiency, more informed trading, and higher profitability of insider trades. The magnitude of these effects depends on the strength of insiders’ ownership and on management’s decision whether to improve the firm’s information environment after coverage termination. Institutional investors alleviate, but do not eliminate, the negative effects of termination.

Keywords: Sell-side Research, Insiders, Insider Trading, Information Asymmetries, Liquidity

JEL Classification: D14, G24, D82

Suggested Citation: Suggested Citation

Ellul, Andrew and Panayides, Marios A. and Panayides, Marios A., Do Financial Analysts Restrain Insiders' Informational Advantage? (January 23, 2016). Available at SSRN: https://ssrn.com/abstract=1133084 or http://dx.doi.org/10.2139/ssrn.1133084