How Do Powerful CEOS Affect Analyst Coverage?

25 Pages Posted: 18 Jun 2014

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Yixin Liu

University of New Hampshire

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: June 2014

Abstract

We examine how CEO power affects the extent of analyst coverage. CEO power can influence a CEO's incentives to disclose information. The amount of information disclosed by the CEO in turn influences the information environment, which affects financial analysts’ incentives to follow the firm. Consistent with this notion, we show that firms with powerful CEOs are covered by fewer analysts. In addition, the evidence shows that firms with more powerful CEOs experience less information asymmetry. Powerful CEOs are well insulated and have fewer incentives to conceal information, resulting in more transparency. The information provided to investors directly by the firm substitutes for the information in the analyst's report. As a result, the demand for analyst coverage is lower. Our results are important because they show that CEO power affects important corporate outcomes such as corporate transparency and analyst following.

Keywords: analyst coverage, analyst following, CEO power, agency theory, agency costs

Suggested Citation

Jiraporn, Pornsit and Liu, Yixin and Kim, Young Sang, How Do Powerful CEOS Affect Analyst Coverage? (June 2014). European Financial Management, Vol. 20, Issue 3, pp. 652-676, 2014. Available at SSRN: https://ssrn.com/abstract=2456043 or http://dx.doi.org/10.1111/j.1468-036X.2012.00655.x

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Yixin Liu

University of New Hampshire ( email )

Durham, NH 03824
United States
603-862-3357 (Phone)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

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