Do Analysts Incorporate Market/Industry-Wide or Firm-Specific Information into Stock Price: Some Evidence on the Role of Earnings Quality
41 Pages Posted: 29 Nov 2013
Date Written: October 6, 2013
Motivated by recent controversies on the information role of financial analysts, this study examines whether firm level transparency proxied by accounting quality affects the mix of market/industry-wide vs. firm-specific information provided by analysts. Specifically, we show that better earnings quality encourages analysts to incorporate more firm-specific information into stock price, which leads to reduced stock price synchronicity. In addition, we find that only non-industry specialist analysts are likely to be encouraged by better earnings quality to incorporate more firm-specific information, suggesting that industry specialists have information advantage from covering different firms in one industry and are less likely to be affected by the disclosure quality of a single firm. Together, these results suggest that analysts take into consideration the cost and benefit of providing firm-specific information in determining the mix of information they help to disseminate to the capital market.
Keywords: Stock price synchronicity, Earnings quality, Analysts following
JEL Classification: G14, M41
Suggested Citation: Suggested Citation