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Do Financial Analysts Restrain Insiders' Informational Advantage?

Andrew Ellul

Indiana University - Department of Finance

Marios A. Panayides

University of Pittsburgh - Finance Group; University of Utah

March 1, 2008

We investigate the competitive relationship between financial analysts and firm insiders for price-sensitive information. We identify the influence of this competition on trade dynamics by empirically examining the impact of complete analysts’ coverage termination on stocks’ liquidity, price discovery and insider trading. Termination leads to a deterioration in liquidity and price efficiency, an increase in information asymmetries, and higher profitability of insider trades. Importantly, the magnitude of these effects depends on insiders’ presence. Institutional investors alleviate, but do not eliminate, the effects of coverage termination. Overall, this evidence indicates that analysts contribute to market quality through competition with insiders.

Number of Pages in PDF File: 70

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

JEL Classification: D14, G24, D82

working papers series

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Date posted: May 17, 2008 ; Last revised: September 28, 2012

Suggested Citation

Ellul, Andrew and Panayides, Marios A., Do Financial Analysts Restrain Insiders' Informational Advantage? (March 1, 2008). Available at SSRN: http://ssrn.com/abstract=1133084 or http://dx.doi.org/10.2139/ssrn.1133084

Contact Information

Andrew Ellul (Contact Author)
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
Marios A. Panayides
University of Pittsburgh - Finance Group ( email )
372 Mervis Hall
Pittsburgh, PA 15260
United States
University of Utah ( email )
David Eccles School of Business
1645 E. Campus Center Drive, Rm. 109
Salt Lake City, UT 84112-9304
United States
801-581-8327 (Phone)
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References:  43
Citations:  9

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