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




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    • Derrien is at HEC Paris and Kecskés is at the Schulich School of Business, York University. We greatly appreciate the comments of Nihat Aktas, an anonymous referee, an anonymous Associate Editor, Roberto Blanco, Craig Brown, François Degeorge, Eli Fich, Laurent Frésard, Cam Harvey (the Editor), Johan Hombert, Filippo Ippolito, Marcin Kacperczyk, Christel Karsten, Alexander Ljungqvist, Roger Loh, Roni Michaely, Sébastien Michenaud, Justin Murfin, Ioanid Rosu, David Thesmar, Heather Tookes, Qinghai Wang, and Ivo Welch, and seminar participants at the 2011 European Finance Association meetings, the 2011 Florida State University Spring Beach Conference, ISCTE Business School in Lisbon, Nanyang Technological University, National University of Singapore, the 2011 Northern Finance Association meetings, the 2011 Rothschild Caesarea Center (IDC Herzliya) Conference, Singapore Management University, l'Université de Lille, the University of Manchester, the University of Porto, the University of Toronto, and the 2011 Western Finance Association meetings.


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.