Analysts' escape: The information cost of anti-organized crime

Maoyong Cheng, Zhenjun Li and Dongmin Kong

International Review of Financial Analysis, 2025, vol. 106, issue C

Abstract: We estimate the information cost of anti-organized crime efforts, proxied by the quasi-natural anti-mafia campaign in China, from the perspective of corporate analyst coverage, an important information intermediary. Using data on Chinese A-share firms listed on the Shanghai and Shenzhen stock exchanges, our difference-in-differences analysis shows that corporate analyst coverage declines during anti-organized crime periods. The baseline results reveal an average decrease of 6.11 % and 6.07 % in analyst and report coverage, respectively. Mechanism tests suggest that this reduction is driven by diminished investor sentiment, increased information asymmetry, and heightened analyst herding behavior. Additional analyses indicate that anti-organized crime efforts lead to greater forecast inaccuracy and divergence among analysts, and reduced analyst coverage exacerbates firm financing constraints. Also, the main finding is more pronounced among poorly-governed firms, highly concentrated industries, and firms in weaker red culture cities. These findings are robust to a range of sensitivity tests. Our study contributes to the understanding of the information cost associated with anti-organized crime, particularly through the lens of analyst coverage.

Keywords: Anti-organized crime; Analyst coverage; Investor sentiment; Information asymmetry; Analyst herding (search for similar items in EconPapers)
JEL-codes: G38 G41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:106:y:2025:i:c:s1057521925006118

DOI: 10.1016/j.irfa.2025.104524

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