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Is There Life after the Complete Loss of Analyst Coverage?

49 Pages Posted: 22 Mar 2010 Last revised: 30 Oct 2012

Simona Mola

U.S. Securities and Exchange Commission; Arizona State University (ASU) - Finance Department

P. Raghavendra Rau

University of Cambridge

Ajay Khorana

Georgia Institute of Technology - Finance Area

Multiple version iconThere are 2 versions of this paper

Date Written: July 16, 2012

Abstract

This paper examines the value of sell-side analysts to covered firms by documenting the effects on firm performance and investor interest after a complete loss of analyst coverage for periods of at least one year. We find that analyst coverage adds value to a firm both because it reduces information asymmetries about the firm’s future performance and because it maintains investor recognition for that firm’s stock. After the introduction of regulations that curtailed the informational advantage of analysts in the early 2000s, the investor recognition role of analysts remains important. Firms that lose all analyst coverage continue to suffer a significant deterioration in bid-ask spreads, trading volumes, and institutional presence but do not show a significant difference in subsequent performance relative to covered peers. In addition, controlling for other factors, we find that firms that lose all analyst coverage for one year are significantly more likely to delist than their covered peers. Our results provide insight into the reasons why firms place so much importance on analyst coverage.

Keywords: analyst coverage, delisting prediction, investor recognition

JEL Classification: G24, G29, G33

Suggested Citation

Mola, Simona and Rau, P. Raghavendra and Khorana, Ajay, Is There Life after the Complete Loss of Analyst Coverage? (July 16, 2012). Available at SSRN: https://ssrn.com/abstract=1573309 or http://dx.doi.org/10.2139/ssrn.1573309

Simona Mola Yost

U.S. Securities and Exchange Commission ( email )

Washington, DC
United States
2025516527 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Ajay Khorana

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

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