68 Pages Posted: 17 May 2008 Last revised: 25 Jan 2016
Date Written: 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.
Keywords: Sell-side Research, Insiders, Insider Trading, Information Asymmetries, Liquidity
JEL Classification: D14, G24, D82
Suggested Citation: 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