Do Financial Analysts Restrain Insiders' Informational Advantage?
68 Pages Posted: 17 May 2008 Last revised: 25 Jan 2016
There are 3 versions of this paper
Do Financial Analysts Restrain Insiders' Informational Advantage?
Do Financial Analysts Restrain Insiders' Informational Advantage?
Do Financial Analysts Restrain Insiders' Informational Advantage?
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: Suggested Citation
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