Monetary Shocks and the Analyst Coverage of the Firm

Abstract

We examine how monetary shocks influence firm-level analyst coverage. We build on the notion that analysts reduce their coverage of firms with challenging business conditions. We find that contractionary monetary shocks, which are known to reduce growth and tighten lending, significantly reduce firm-level analyst coverage. On average, a one-standard-deviation contractionary shock reduces the analyst coverage of the average firm by roughly 10%. The reduction in analyst coverage is more pronounced for high-leverage firms that are likely to struggle under tight monetary conditions. The reduction in analyst coverage of high-leverage firms is almost 50% larger, and much faster, than the reduction in the coverage of low-leverage firms. Our results emphasize the informational consequences of monetary policy.

Keywords: Monetary Policy, Analyst Coverage, Leverage.