Analysts and Corporate Liquidity Policy

73 Pages Posted: 16 Sep 2011

See all articles by Chinghung (Henry) Chang

Chinghung (Henry) Chang

National Taiwan University - College of Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 14, 2011


This paper examines how equity analysts’ roles as information intermediaries and monitors affect corporate liquidity policy and its associated value of cash, providing new evidence that analysts have a direct impact on corporate liquidity policy. Greater analyst coverage (1) reduces information asymmetry between a firm and outside shareholders and (2) enhances the monitoring process. Consistent with these arguments, analyst coverage increases the value of cash, thereby allowing firms to hold more cash. The cash-to-assets ratio increases by 5.2 percentage points when moving from the bottom analyst-coverage decile to the top decile. The marginal value of $1 of corporate cash holdings is $0.93 for the bottom analyst-coverage decile and $1.83 for the top decile. The positive effects remain robust after a battery of endogeneity checks. To further address the endogeneity concern, I employ a unique dataset that consists of public and private firms, as well as a dataset that consists of public firms that have gone private. A public firm with analyst coverage can hold approximately 8% more cash than its private counterpart. These findings constitute new evidence on the real effect of analyst coverage.

Keywords: cash holdings, analyst, information asymmetry, intermediaries, monitoring, private firms

JEL Classification: D82, G14, G30, G32, G34, N22

Suggested Citation

Chang, Ching-Hung, Analysts and Corporate Liquidity Policy (August 14, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: or

Ching-Hung Chang (Contact Author)

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106

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