The Great Sell-Side Sell-off: Early Evidence of Declining Financial Analyst Coverage

This study investigates the effect of financial analyst coverage on audit efforts by examining the association between the number of analyst followings and audit hours. Existing literatures report that there are inconsistent results between analyst coverage and audit efforts, and most studies used audit fee as a proxy for audit efforts. However, audit fee may cause measurement error. We consider that audit hour is a better proxy for measuring audit efforts than audit fee because practically auditors are less likely to charge extra audit fee for their additional efforts in competitive audit market. Also, after audit engagement contract, the amount of audit fee is almost fixed. Thus, it cannot reflect variable auditors decision whether inputting additional efforts or not during audit service. Intuitively, audit hours are more accurate measure of audit efforts as long as it indicates how much hours auditors work. For the above reasons, we use unique dataset of audit hours in Korea. We find that analyst coverage is positively associated with audit hour. This means auditors make more efforts on their audit service in case of greater analyst following, and they crucially consider reputational damage from audit failure when they provide audit services to their clients with great analyst following. Next, we still observe positive relation in both pre and post global financial crisis periods. Lastly, we find that BIG4 auditors are more concerned about reputational loss than Non-Big4 in case of greater analyst following.

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Analyst Coverage And The Diversification Discount

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i8.3035 ◽

2011 ◽

Vol 1 (8) ◽

Author(s):

Ronald W. Best ◽

Charles W. Hodges ◽

Bing-Xuan Lin

Keyword(s):

Information Asymmetry ◽

Font Size ◽

Diversification Discount ◽

Financial Analyst ◽

Analyst Coverage

We use financial analyst coverage as a measure of information asymmetry to examine excess firm values associated with single- and multi-segment firms.  We explicitly examine whether differences in analyst coverage can explain the diversification discount.  We find that information asymmetry plays a major role in the valuation of companies and explains a large portion of the diversification discount.  However, a significant diversification discount remains after controlling for the effects of analyst coverage.

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Financial Analyst Coverage, Method of Payment and Wealth Effects in M&As

SSRN Electronic Journal ◽

10.2139/ssrn.2133122 ◽

2012 ◽

Author(s):

Mathieu Luypaert ◽

Tom Van Caneghem

Keyword(s):

Wealth Effects ◽

Financial Analyst ◽

Analyst Coverage ◽

Method Of Payment

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Twitter-Based Dissemination of Corporate Disclosure and the Intervening Effects of Firms' Visibility: Evidence from Australian-Listed Companies

Journal of Information Systems ◽

10.2308/isys-50994 ◽

2014 ◽

Vol 29 (2) ◽

pp. 107-136 ◽

Cited By ~ 29

Author(s):

Maria Prokofieva

Keyword(s):

Information Asymmetry ◽

Stock Exchange ◽

Listed Companies ◽

Negative Association ◽

Corporate Disclosure ◽

Financial Analyst ◽

Analyst Coverage ◽

Business Press ◽

Corporate Announcements ◽

Twitter Activity

ABSTRACT This paper investigates the effect of dissemination of corporate disclosure via Twitter. In particular, the study is focused on listed companies in Australia that employed Twitter as a secondary dissemination channel for corporate announcements in 2008–2013. Based on a sample of 3,516 announcements at the Australian Stock Exchange (ASX) related to 109 listed companies, the research employs the Investor Recognition Hypothesis to investigate the effect of Twitter activity on the information asymmetry proxied by abnormal spread (SpreadAbn). The findings show that there is a negative association between SpreadAbn and tweets posted by a firm during the announcement period. Further analysis shows that this association is stronger for firms less visible through business press or financial analyst coverage. The study concludes that while corporate announcements are publicly available through the ASX platform, dissemination of corporate announcements through Twitter allows companies to attract investors' attention and decrease information asymmetry.

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The effect of financial analysts on the economic implications of disclosed lease information – a note

Journal of Applied Accounting Research ◽

10.1108/jaar-08-2020-0175 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Su-Jane Hsieh ◽

Yuli Su

Keyword(s):

Stock Returns ◽

Cash Flow ◽

Stock Prices ◽

Predictive Value ◽

Financial Analysts ◽

Financial Analyst ◽

Analyst Following ◽

Analyst Coverage ◽

Content Type ◽

The Impact

PurposeThe purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and stock prices.Design/methodology/approachThe difference in lease expense between capital/finance lease and operating lease reporting is estimated based on the approach in Hsieh and Su (2015). This difference is referred to as the earnings impact from operating lease capitalization and is only available from footnotes. The authors then include the level of financial analyst following in a cash flow model to study its impact on the cash flow predictive value of the earnings impact. Similarly, the level of financial analyst following is inserted in an earnings-return model to assess the effect of analyst coverage on the association between contemporaneous stock returns and earnings impact.FindingsThe authors find that the cash flow predictive value of the earnings impact shifts to the interaction between analyst coverage and the earnings impact, suggesting that the decision-usefulness of the earnings impact is conditioned on the level of analyst following. Nevertheless, the authors find that the earnings impact continues to have explanatory value for the contemporaneous stock returns, while the interaction between analyst coverage and the earnings impact does not. This finding suggests that the earnings impact is already fully reflected in stock prices regardless of analyst following.Research limitations/implicationsSince the estimation of the earnings impact from reporting operating leases as capital leases is based on the method developed by Imhoff et al. (1991), the results and inferences are thus constrained by the validity of the method.Practical implicationsThe authors find that financial analyst activities accelerate the incorporation of the earnings impact from operating lease capitalization in cash flow predictions, but it does not promote the impounding of the earnings impact into stock prices. This finding suggests that financial analysts' influence on the dissemination of the earnings impact hinges on the type of economic activity, and failing to consider the financial analyst following in studying the cash flow predictive value of the earnings impact would obscure the findings.Originality/valueThe authors extend the findings of prior research that financial analysts' activities promote the incorporation of firm-specific information into stock prices by investigating the impact of financial analysts on the dissemination of disclosed operating lease information.

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