How Does Analyst Coverage Influence Corporate Leverage Adjustment: Evidence from China

Renji Sun, Kung-Cheng Ho, Chiu-Lan Chang and Sijia Luo

Emerging Markets Finance and Trade, 2022, vol. 58, issue 13, 3881-3897

Abstract: This study investigates the influence of analyst coverage on corporate leverage adjustment (CLA) in China. We analyzed 26,673 firm-year observations from the Shanghai and Shenzhen stock exchanges from 2000 to 2020 and found that analyst coverage had a negative impact on CLA, which was stronger in firms with poor performance. We posit that analyst forecast divergence and pressure-induced managerial myopia are possible mechanisms through which analyst coverage influences CLA. Our study contributes to the dynamic trade-off model literature by demonstrating that analyst coverage is also a determinant of CLA. Furthermore, our findings help regulators and investors to comprehensively understand the role of analysts in emerging markets.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:58:y:2022:i:13:p:3881-3897

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DOI: 10.1080/1540496X.2022.2073815

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