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


The Journal of Finance

août 2013, vol. 68, n°4, pp.1407-1440

Départements : Finance, GREGHEC (CNRS)

Mots clés : Financial shocks, Information asymmetry, Real effects, Investment, Financing, Cash holdings, Natural experiment, Matching estimators, Difference-in-differences, Equity research analysts

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.