The Impact of Analyst Following on Stock Prices and the Implications for Firms' Disclosure Policies
JOURNAL OF ACCOUNTING, AUDITING AND FINANCE, Vol 11, No 3, Summer 1996
Posted: 19 May 1998
This paper shows that there is a positive relation between the number of analysts following a firm and the firm's expected share price. This relation is a direct consequence of market participants' inability to observe the number of informed traders in the market. It is further shown that a firm's manager can have an impact on analyst following by varying the precision of the private information analysts obtain about the firm. In equilibrium, the manager will choose a precision level greater than that which maximizes analyst following, but, in many cases, less than its largest possible value.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation