Analyst Coverage and Expected Crash Risk : Evidence from Exogenous Changes in Analyst Coverage
Related Research Unit(s)
|Journal / Publication||The Accounting Review|
|Online published||Sep 2018|
|Publication status||Published - Jul 2019|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-85072379880&origin=recordpage|
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.
- Analyst coverage, Bad news hoarding, Expected crash risk
Research Unit(s) information for this publication is provided by the author(s) concerned.
The Accounting Review, Vol. 94, No. 4, 07.2019, p. 345-364.
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
KIM, J-B, Lu, LY & YU, Y 2019, 'Analyst Coverage and Expected Crash Risk: Evidence from Exogenous Changes in Analyst Coverage', The Accounting Review, vol. 94, no. 4, pp. 345-364. https://doi.org/10.2308/accr-52280