The Predictive Role of Analyst Coverage Intensity: Evidence from Cross-Listing in the U.S.

Journal of Contemporary Accounting and Economics, Vol. 3, No. 1, pp. 34-57, June 2007

Posted: 8 Oct 2006 Last revised: 7 Sep 2008

Feng Chen

University of Toronto - Rotman School of Management

Ira S. Weiss

University of Chicago - Graduate School of Business; Columbia Business School - Department of Accounting

Lin Zheng

Georgia College & State University

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Abstract

This paper investigates financial analysts' predictive power of future performance and earnings quality, based on their selective coverage of firms that have recently cross-listed into the U.S. This setting is useful for examining these questions because, following cross-listing, firms often experience an increase in analyst coverage and an improvement in their information environment. We find that analyst coverage is positively related to analysts' expectation about firms' future performance and negatively related to analysts' concern over firms' earnings quality. Furthermore, country-level legal origin and disclosure index are two significant determinants of analyst coverage of cross-listed firms. In addition, the intensity of analyst coverage can predict future abnormal stock price performance. Our latter finding augments those in Das, Guo, and Zhang (2006), who investigate the predictive role of analyst coverage following IPOs. The benefit of our setting is that, unlike the post-IPO period, cross-listing firms do not appear to experience mis-pricing that might confound the results. Overall, our study further documents the substantial informational benefits to cross-listing, but suggests that these informational benefits may not be complete, since financial analysts appear to have predictive power and selectively provide coverage for firms with favorable future prospects.

Keywords: Analysts' selective coverage, cross-listed firms, legal institutions, earnings quality

JEL Classification: M41, G15, F36

Suggested Citation

Chen, Feng and Weiss, Ira S. and Zheng, Lin, The Predictive Role of Analyst Coverage Intensity: Evidence from Cross-Listing in the U.S.. Available at SSRN: https://ssrn.com/abstract=934784

Feng Chen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada

Ira Samuel Weiss

University of Chicago - Graduate School of Business ( email )

5807 S. Woodlawn Ave
Chicago, IL 60637
United States

Columbia Business School - Department of Accounting ( email )

3022 Broadway
622 Uris Hall
New York, NY 10027
United States

HOME PAGE: http://www.gsb.columbia.edu/divisions/accounting/iweiss

Lin Zheng (Contact Author)

Georgia College & State University ( email )

CBX 15
Milledgeville, GA 31059
United States

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