Do Analysts Cater to Investor Information Demand?

Abstract

We extend the literature by investigating whether analysts cater their coverage to investor information demand. Results suggest that analysts’ coverage is contemporaneously positively associated with investor information demand, and negatively associated with the previous time periods information demand. However, the magnitude of the contemporaneous positive association is greater than the magnitude of the proceeding negative association. This implies analyst following significantly increases on firms which have more retail and institutional information demand, but partially revert their coverage after the information demand shock. Furthermore, results suggest that analysts cater their coverage more towards institutional investors, relative to retail investors. These results suggest that analysts focus their coverage on companies that have garnered the most interest from investors, thus potentially maximizing the utility of the information the analyst disseminates.

Keywords: Analyst Coverage; Information Demand; Institutional Investor; Retail Investor

JEL Classification: G14; G23; G24; G29