Security Analysis, Agency Costs and Firm Characteristics
John A. Doukas
Old Dominion University - College of Business & Public Administration
Chansog (Francis) Kim
City University of Hong Kong - College of Business
University of South Florida - College of Business Administration
March 17, 2000
In this paper we appraise the monitoring activity of security analysis from the manager-shareholder conflict perspective. Using a data set of more than 7,000 firm-year observations for manufacturing firms tracked by security analysts over the 1988-1994 period, our evidence supports the view that security analysis acts as a monitoring mechanism in reducing agency costs associated with the separation of ownership and control. However, we also find that security analysts are more effective in reducing managerial non-value maximizing behavior for single- (focused) than multi-segment (diversified) firms. In addition, the shareholder gains from the monitoring activity of security analysis are larger for focused than diversified firms.
Number of Pages in PDF File: 24
JEL Classification: G34working papers series
Date posted: April 18, 2000
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