What is the value of sell-side analysts? Evidence from coverage initiations and terminations

Kevin K. Li and Haifeng You

Journal of Accounting and Economics, 2015, vol. 60, issue 2, 141-160

Abstract: We investigate three potential channels of analyst value creation: improving fundamental performance through monitoring, reducing information asymmetry, and increasing investor recognition. We show that changes in investor recognition have consistent explanatory power for the market reaction to coverage initiations and terminations but find mixed evidence for changes in information asymmetry and no evidence for changes in fundamental performance as determinants of the market reaction. These results suggest that analysts create value for firms under their coverage by improving their investor recognition and not by monitoring or reducing information asymmetry.

Keywords: Coverage initiation; Exogenous coverage termination; Firm value; Investor recognition; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G14 G24 G29 G32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:60:y:2015:i:2:p:141-160

DOI: 10.1016/j.jacceco.2015.08.006

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