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| Analyst Coverage and Stock Price Crash Risk Based on Information Generation Process |
| HAN Yanjin,FENG Xiaoqing,SONG Jianbo |
| Renmin University of China, Beijing, China |
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Abstract Different from the perspective of irrational behavior of analysts in the information dissemination process, we examine the impact of analyst coverage on stock price crash risk from the perspective of managerial opportunistic behavior in the information generation process. Using 2007~2017 Chinese A share listed firms as samples, we find that analyst coverage increases firms’ future crash risk, and this effect is more prominent in firms followed by star analysts and in firms with lower industry concentration, supporting the market pressure hypothesis. This result is robust after controlling for endogeneity using brokerage mergers as a source of exogenous shock to analyst coverage. Further analyses find that analyst coverage increases the pressure on managers to reach short-term earnings targets, prompting them to conduct information manipulation with upward earnings management.
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Received: 28 April 2020
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