Exchange-Sponsored Analyst Coverage

Abstract

Several major stock exchanges, including the NASDAQ and NYSE Euronext, have recently embarked on schemes to sponsor and promote analyst coverage for firms listed on their exchanges. We evaluate the efficacy of one such scheme pioneered by the Singapore Exchange (SGX). We find that sponsored analysts produce forecasts with similar bias, but lower accuracy than those issued by analysts voluntarily following a firm. In analyses that control for self-selection into the SGX Scheme, we find that sponsored firms enjoy at best minor improvements in their information environments and stock liquidity. Any benefits accruing from the Scheme are insufficient to make sponsored firms fully comparable to those of firms with voluntary analyst following on the measured attributes.

Keywords: Analyst Coverage, Stock Exchange Sponsored, Information Environment, Liquidity

JEL Classification: M40, G14, G24