Do Financial Analysts Restrain Insiders' Informational Advantage?
Indiana University - Kelley School of Business - Department of Finance
Marios A. Panayides
University of Pittsburgh - Katz Graduate School of Business
January 23, 2016
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.
Number of Pages in PDF File: 68
Keywords: Sell-side Research, Insiders, Insider Trading, Information Asymmetries, Liquidity
JEL Classification: D14, G24, D82
Date posted: May 17, 2008 ; Last revised: January 25, 2016