Do Analysts' Preferences Affect Corporate Policies?

53 Pages Posted: 19 Apr 2013 Last revised: 29 Oct 2013

See all articles by Francois Degeorge

Francois Degeorge

University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

François Derrien

HEC Paris - Finance Department

Ambrus Kecskes

York University - Schulich School of Business

Sebastien Michenaud

Kellstadt Graduate School of Business

Date Written: June 2013

Abstract

Equity research analysts tend to cover firms about which they have favorable views. We exploit this tendency to infer analysts' preferences for corporate policies from their coverage decisions. We then use exogenous analyst disappearances to examine the effect of these preferences on corporate policies. After an analyst disappears, firms change their policies in the direction opposite to the analyst's preferences. The influence of analyst preferences on policies is stronger for firms for which analyst coverage is likely to matter more: young firms, and firms with higher market valuations. Our results suggest that firms choose their corporate policies, in part, to be consistent with the preferences of their analysts.

Keywords: Equity research analysts, Preferences, Real effects, Investment, Financing, Payouts, Leverage, Cash holdings

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

Suggested Citation

Degeorge, Francois and Derrien, François and Kecskes, Ambrus and Michenaud, Sebastien, Do Analysts' Preferences Affect Corporate Policies? (June 2013). Swiss Finance Institute Research Paper No. 13-22; ECGI - Finance Working Paper No. 361. Available at SSRN: https://ssrn.com/abstract=2253619 or http://dx.doi.org/10.2139/ssrn.2253619

Francois Degeorge (Contact Author)

University of Lugano - Faculty of Economics ( email )

via Giuseppe Buffi 13
CH-6904 Lugano
Switzerland
41 58 666 4634 (Phone)
41 58 666 4647 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Sebastien Michenaud

Kellstadt Graduate School of Business ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States
(312)362-5001 (Phone)

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

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