Download This PaperCorporate Watchdogs
Financial Management, Vol. 49, 925-947, 2020
43 Pages Posted: 12 Jun 2019 Last revised: 26 Jul 2022
Date Written: May 26, 2019
Abstract
We investigate the role of financial analysts as corporate watchdogs. We show that firms that are subject to intense analyst monitoring are more likely to be investigated by the SEC or to be the subject of a securities class action. Using cross-sectional variations in managerial entrenchment we find that this effect is not a reflection of the "dark side of analyst coverage", analysts pushing executives to misbehave to exceed short-term expectations. We tackle the endogeneity of coverage decisions by using two instrumental variables and a quasi-natural experiment based on exogenous shocks to coverage due to mergers and closures of brokers.
Keywords: Financial Analysts, Litigation Risk, Managerial Misbehavior
JEL Classification: G14, G24, G34
Suggested Citation: Suggested Citation
Bocconi University - CAREFIN - Centre for Applied Research in Finance
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C/- University of Queensland Business School
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Australia