Analyst Herding and Stock Price Crash Risk: Evidence from China

41 Pages Posted: 6 Sep 2017

See all articles by Nianhang Xu

Nianhang Xu

Renmin University of China - School of Business

Jiang Xuan Yu

affiliation not provided to SSRN

Kam C. Chan

Western Kentucky University - Department of Accounting and Finance

Shinong Wu

Xiamen University

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

We examine the proposition that firms with disproportionately more analysts herding in their coverage, as measured by a larger herding index value, have higher crash risk. Our findings are consistent with the main proposition. The results suggest that information production, rather than monitoring, is the primary mechanism behind the positive relation between herding and crash risk. Our conclusion is robust to different measures of crash risk, crash risk windows, herding measures, subsamples, and instrumental estimation. In addition, using post‐earnings announcement drift, we report that analyst herding slows down bad news transmission in the market. Our findings extend the literature by documenting that analyst herding plays a role in enhancing crash risk. Analyst herding has economic consequences on the covered firms. We offer support for the concern in the literature regarding analyst herding and market fluctuations.

Suggested Citation

Xu, Nianhang and Yu, Jiang Xuan and Chan, Johnny and Wu, Shinong, Analyst Herding and Stock Price Crash Risk: Evidence from China (October 2017). Journal of International Financial Management & Accounting, Vol. 28, Issue 3, pp. 308-348, 2017. Available at SSRN: https://ssrn.com/abstract=3032185 or http://dx.doi.org/10.1111/jifm.12062

Nianhang Xu (Contact Author)

Renmin University of China - School of Business ( email )

Beijing
China

Jiang Xuan Yu

affiliation not provided to SSRN

Johnny Chan

Western Kentucky University - Department of Accounting and Finance ( email )

Bowling Green, KY 42101
United States

Shinong Wu

Xiamen University ( email )

Xiamen, Fujian 361005
China

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