The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage

François Derrien () and Ambrus Kecskés
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François Derrien: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique
Ambrus Kecskés: Schulich School of Business - York University [Toronto]

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Abstract: We study the causal effects of analyst coverage on corporate investment and financing policies. We hypothesize that a decrease in analyst coverage increases information asymmetry and thus increases the cost of capital; as a result, firms decrease their investment and financing. We use broker closures and broker mergers to identify changes in analyst coverage that are exogenous to corporate policies. Using a difference-in-differences approach, we find that firms that lose an analyst decrease their investment and financing by 1.9% and 2.0% of total assets, respectively, compared to similar firms that do not lose an analyst.

Keywords: Financial shocks; Information asymmetry; Real effects; Investment; Financing; Cash holdings; Natural experiment; Matching estimators; Difference-in- differences; Equity research analysts (search for similar items in EconPapers)
Date: 2013-08-01
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Citations: View citations in EconPapers (123)

Published in Journal of Finance, 2013, 68 (4), pp.1407-1440. ⟨10.1111/jofi.12042⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00852356

DOI: 10.1111/jofi.12042

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