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Analyst coverage and the quality of corporate investment decisions

Thomas Y. To, Marco Navone and Eliza Wu ()

Journal of Corporate Finance, 2018, vol. 51, issue C, 164-181

Abstract: In this paper, we examine the effect of financial analysts on the quality of corporate investment decisions. We show that greater analyst coverage leads to higher total factor productivity within firms, a finding that is robust after using both an instrumental variable approach and an experimental design that exploits exogenous reductions in analyst coverage due to broker mergers and closures. We further identify that the positive effect of analysts on firm-level productivity emanates from their critical role in information distribution and external monitoring within more opaque and financially constrained firms and also firms with weaker investor protection.

Keywords: Equity analysts; Productivity; Information asymmetry; Corporate governance; External finance; Corporate investment (search for similar items in EconPapers)
JEL-codes: G31 G32 G34 G39 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:51:y:2018:i:c:p:164-181

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