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How Do Powerful CEOs Affect Analyst Coverage?Pornsit JirapornPennsylvania State University - SGPS; National Institute of Development Administration (NIDA), Bangkok, Thailand Yixin LiuUniversity of New Hampshire Young Sang KimNorthern Kentucky University - Haile/US Bank College of Business April 4, 2012 Abstract: We examine how CEO power affects the extent of analyst coverage. CEO power may influence the CEO’s incentives to disclose information. The amount of information disclosed by the firm in turn influences the information environment, which affects the financial analyst’s incentives to “cover” or “follow” the firm. Consistent with this notion, we show that firms with powerful CEOs are covered by fewer analysts. In addition, the evidence shows that firms with more powerful CEOs experience less information asymmetry. Powerful CEOs are well-insulated and have less incentives to conceal information, resulting in more transparency. The information provided to investors directly by the firm substitutes for the information in the analyst’s report. As a result, the demand for analyst coverage is lower. Our results are important as they show that CEO power matters to corporate outcomes, such as corporate transparency and analyst following.
Number of Pages in PDF File: 45 Keywords: analyst coverage, analyst following, CEO power, agency theory, agency costs, agency conflicts JEL Classification: G34, M41 working papers seriesDate posted: April 5, 2012 ; Last revised: April 29, 2012Suggested CitationContact Information
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