The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage

50 Pages Posted: 16 Dec 2010 Last revised: 9 Mar 2013

See all articles by François Derrien

François Derrien

HEC Paris - Finance Department

Ambrus Kecskes

York University - Schulich School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 23, 2012

Abstract

We study the causal effects of analyst coverage on corporate investment and financing policies. We hypothesize that a decrease in analyst coverage increases information asymmetry and thus increases the cost of capital; as a result, firms decrease their investment and financing. We use broker closures and broker mergers to identify changes in analyst coverage that are exogenous to corporate policies. Using a difference-in-differences approach, we find that firms that lose an analyst decrease their investment and financing by 2.4% and 2.6% of total assets, respectively. These results are significantly stronger for firms that are smaller, have less analyst coverage, have a bigger increase in information asymmetry, and are more financially constrained.

Keywords: Financial shocks, Information asymmetry, Real effects, Investment, Financing, Cash holdings, Natural experiment, Matching estimators, Difference-in-differences, Equity research analysts

JEL Classification: D80, G24, G31, G32, G34, G35

Suggested Citation

Derrien, François and Kecskes, Ambrus, The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage (May 23, 2012). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1725539 or http://dx.doi.org/10.2139/ssrn.1725539

François Derrien

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

Ambrus Kecskes (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,513
Abstract Views
8,847
Rank
18,744
PlumX Metrics