Do Financial Analysts Restrain Insiders' Informational Advantage?

68 Pages Posted: 17 May 2008 Last revised: 25 Jan 2016

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); University of Salerno - Centre for Studies in Economics and Finance (CSEF); European Corporate Governance Institute (ECGI)

Marios A. Panayides

University of Pittsburgh - Katz Graduate School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: January 23, 2016

Abstract

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.

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

JEL Classification: D14, G24, D82

Suggested Citation

Ellul, Andrew and Panayides, Marios A., Do Financial Analysts Restrain Insiders' Informational Advantage? (January 23, 2016). Available at SSRN: https://ssrn.com/abstract=1133084 or http://dx.doi.org/10.2139/ssrn.1133084

Andrew Ellul (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

University of Salerno - Centre for Studies in Economics and Finance (CSEF) ( email )

84084 Fisciano, Salerno
Italy

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Marios A. Panayides

University of Pittsburgh - Katz Graduate School of Business ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

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