Articlegreen2011

Determinants of Analysts’ Dropped Coverage Decision: The Role of Analyst Incentives, Experience, and Accounting Fundamentals

28 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract: After controlling for economic performance (i.e., stock returns), we find that several proxies for analyst incentives as well as accounting‐based fundamentals are related to an analyst's decision to drop coverage of a firm. When we separately consider the drop decisions of analysts with High vs. Low Experience, we find that Low Experience analysts place more weight on firm risk and decreases in liquidity when making their drop decision, while High Experience analysts place higher weights on accounting losses and decreasing SG&A margins. Lastly, when High (Low) Experience analysts initiate dropped coverage, their Low (High) Experience peers mimic the dropped coverage fairly quickly (fairly slowly).

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References

1974Judgment under Uncertainty: Heuristics and Biases 1975Judgment under Uncertainty: Heuristics and Biases 2004Information and the Cost of Capital 1996Corporate Disclosure Policy and Analyst Behavior.1996Do Brokerage Analysts' Recommendations Have Investment Value?2003Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts 1999Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?1998Underwriting relationships, analysts' earnings forecasts and investment recommendations

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