Cover Me: Managers' Responses to Changes in Analyst Coverage in the Post-Regulation FD Period

The Accounting Review, Forthcoming

Posted: 11 May 2011

See all articles by Divya Anantharaman

Divya Anantharaman

Rutgers, The State University of New Jersey - Accounting & Information Systems

Yuan Zhang

University of Texas at Dallas

Date Written: May, 10 2011

Abstract

We show that managers increase the volume of public financial guidance in response to decreases in analyst coverage of their firms, particularly to decreases that are driven by exogenous reduction in brokerage firm size. Managers do not respond to increases in analyst coverage. The managerial guidance response to decreases in coverage reflects the trade-off between the marginal benefits from analyst coverage and the marginal costs of providing guidance. Specifically, the response is concentrated within firms engaging in equity issuance activities, firms with low stock liquidity, and firms with low current guidance levels. The response is also concentrated within firms whose remaining analyst pool is smaller in number, has a lower percentage of analysts who are positive about the firm, or who belong to a large brokerage house. Overall, our results shed insights on the interaction between managers and analysts and on how the value of analysts, as perceived by managers, varies in the cross-section with underlying firm and analyst characteristics.

Keywords: Managerial Guidance, Analyst Coverage, Value of Analysts

Suggested Citation

Anantharaman, Divya and Zhang, Yuan, Cover Me: Managers' Responses to Changes in Analyst Coverage in the Post-Regulation FD Period (May, 10 2011). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1837126

Divya Anantharaman

Rutgers, The State University of New Jersey - Accounting & Information Systems ( email )

1 Washington Park
#916
Newark, NJ 07102
United States

Yuan Zhang (Contact Author)

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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