The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage
HEC Paris - Finance Department
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law
May 23, 2012
Journal of Finance, Forthcoming
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 2.4% and 2.6% of total assets, respectively. These results are significantly stronger for firms that are smaller, have less analyst coverage, have a bigger increase in information asymmetry, and are more financially constrained.
Number of Pages in PDF File: 50
Keywords: Financial shocks, Information asymmetry, Real effects, Investment, Financing, Cash holdings, Natural experiment, Matching estimators, Difference-in-differences, Equity research analysts
JEL Classification: D80, G24, G31, G32, G34, G35Accepted Paper Series
Date posted: December 16, 2010 ; Last revised: March 9, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.671 seconds