Simultaneous determination of UK analyst following and institutional ownership

Simon Hussain

Accounting and Business Research, 2000, vol. 30, issue 2, 111-124

Abstract: This study examines analyst following for firms in the UK Top 350 as of January 1998, within a simultaneous equation framework. A major conclusion to be drawn from this investigation is that, contrary to prior UK evidence, analyst following and institutional ownership are positively associated. This relationship is identified once the endogenous nature of variable determination is acknowledged. This study also finds that analyst following is positively associated with firm size. This results from the greater economic incentives and potential rewards for analysts following firms with large market values. Analyst following is negatively associated with total risk, possibly indicating a concern for forecasting reputation. There is also evidence of an industry-sector effect. Where firms operate in sectors which have greater regulation of activities, demand for analysts' services is reduced. Thus, regulation may act as a substitute source of information for investors. The influence of insider ownership on analyst following appears to operate through its impact on institutional ownership. Contrary to the pre-experimental expectation, neither analyst following nor institutional ownership are significantly associated with trading activity. These conclusions appear robust to a number of sensitivity tests.

Date: 2000
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DOI: 10.1080/00014788.2000.9728929

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