Duality of Analyst Coverage: Evidence from Product Recalls

67 Pages Posted: 28 Apr 2021 Last revised: 15 Dec 2021

See all articles by Yinghua Li

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Yupeng Lin

National University of Singapore

Xiaoqiao Wang

The Chinese University of Hong Kong, Shenzhen

Shijie Yang

The Chinese University of Hong Kong, Shenzhen

Date Written: August 8, 2020

Abstract

This article investigates the role of financial analysts in product quality failures. Using a comprehensive sample of product recalls, we establish three main results. First, analyst coverage on average increases the frequency of product quality failures, particularly when managers are inclined to succumb to analysts’ pressure to pursue short-term profits. Second, analyst coverage inhibits quality-enhancing activities such as tightening control over input quality, establishing a quality-focused corporate culture, and increasing SG&A investments. Lastly, analysts can help reduce quality failures when they have supply-chain expertise. Taken together, our results uncover both detrimental and beneficial effects of analysts on product quality and safety.

Keywords: analyst coverage, product quality, product recall, corporate failure

JEL Classification: G24, G34, G38, L15

Suggested Citation

Li, Yinghua and Lin, Yupeng and Wang, Xiaoqiao and Yang, Shijie, Duality of Analyst Coverage: Evidence from Product Recalls (August 8, 2020). Available at SSRN: https://ssrn.com/abstract=3831836 or http://dx.doi.org/10.2139/ssrn.3831836

Yinghua Li

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://wpcarey.asu.edu/people/profile/2386522

Yupeng Lin (Contact Author)

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Xiaoqiao Wang

The Chinese University of Hong Kong, Shenzhen ( email )

Shijie Yang

The Chinese University of Hong Kong, Shenzhen ( email )

Zhiren 606
2001 Longxiang Road, Longgang District
Shenzhen, Guangdong 518172
China

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