What Is the Value of Sell-Side Analysts? Evidence from Coverage Changes: A Discussion for the Journal of Accounting and Economics
20 Pages Posted: 6 Sep 2015
Date Written: August 4, 2015
Li and You (this volume) study public firms’ common stock return reactions to two events: when analysts’ initiate coverage of the firm and when they terminate coverage. They test the returns for evidence of three sources of value added by analysts: (1) more monitoring of the firm, (2) reduced information asymmetry about the firm, and (3) greater demand for the firm’s common stock. They find consistent support for analysts adding value by increasing demand, but not monitoring or by reducing information asymmetry. Their findings also indicate that analysts’ initiations supply little new information. I review these findings, put them in perspective with related research, and note research directions.
Keywords: Coverage initiation, exogenous coverage termination, financial analysts, firm value, investor recognition, information asymmetry, security analysts
JEL Classification: G14, G14, G29, G32
Suggested Citation: Suggested Citation