Do Corporate Disclosures Constrain Strategic Analyst Behavior?
68 Pages Posted: 5 May 2020 Last revised: 1 Jul 2021
Date Written: April 18, 2020
We show that U.S. analysts alter their behavior in response to a randomly assigned shock that exogenously varies the timeliness and cost of accessing companies’ mandatory disclosures in the cross-section of investors: analysts drop coverage of stocks with high disclosure quality, issue less optimistic and more accurate forecasts that are less bold and less informative, and collectively reduce forecast dispersion. Our investigation of possible channels favors the explanation that analysts reduce a strategic component of their behavior: the changes are more pronounced among analysts with stronger incentives to strategically skew their forecasts, such as affiliated analysts and those catering to retail investors. We conclude that mandatory disclosure can be a substitute for information production by analysts, whose behavior is constrained by investors’ ability to verify their forecasts using corporate filings.
Keywords: Financial Analysts, EDGAR, Mandatory Disclosure, Financial Intermediary
JEL Classification: G18, G29, G38, M41, M48
Suggested Citation: Suggested Citation