Security Analysis, Agency Costs and Firm Characteristics
24 Pages Posted: 18 Apr 2000
Date Written: March 17, 2000
In this paper we appraise the monitoring activity of security analysis from the manager-shareholder conflict perspective. Using a data set of more than 7,000 firm-year observations for manufacturing firms tracked by security analysts over the 1988-1994 period, our evidence supports the view that security analysis acts as a monitoring mechanism in reducing agency costs associated with the separation of ownership and control. However, we also find that security analysts are more effective in reducing managerial non-value maximizing behavior for single- (focused) than multi-segment (diversified) firms. In addition, the shareholder gains from the monitoring activity of security analysis are larger for focused than diversified firms.
JEL Classification: G34
Suggested Citation: Suggested Citation