Analyst Coverage and Expected Crash Risk : Evidence from Exogenous Changes in Analyst Coverage

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)345-364
Journal / PublicationThe Accounting Review
Issue number4
Online publishedSept 2018
Publication statusPublished - Jul 2019


Using brokerage mergers and closures as two sources of exogenous shock to analyst coverage, this study explores the causal effect of analyst coverage on ex ante expected crash risk as captured by the options implied volatility smirk. We find a significant increase in a firm's ex ante expected crash risk subsequent to an exogenous drop in analyst coverage; this positive effect is stronger for firms initially receiving less coverage. Further, we find analysts' ability matters to investors' assessment of future crash risk. Specifically, we find the impact is more pronounced for the coverage terminations of analysts with more firm-specific or general experience, with greater access to resources, or whose prior forecasts are more accurate than those of their peers. Overall, our results suggest that investors in the options market do recognize analysts as important information intermediaries and monitors, and thus, that analyst coverage influences the underlying stock's expected crash risk.

Research Area(s)

  • Analyst coverage, Bad news hoarding, Expected crash risk

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.