Information Opacity, Maximum Analyst Coverage and Market Reaction

Abstract

Abstract:

Based on existing literature, we separate the maximum analyst coverage (max analysts refer to those who track and publish opinions on a company and its stock most actively in a year) from ordinary analyst coverage and focus on how information environment affects max analysts' behaviors. Our conclusions are as follows:(1) the number of max analysts' reports is more indicative than the total number of tracking analysts and the total number of reports; (2) in order to avoid managers' tunneling behaviors, max analysts prefer to track companies that perform the earnings management of upward discretional accruals (or the downward real earnings management);(3) there is a positive relationship between the effect of firms' earnings announcement and the magnitude of earnings managements, which means investors cannot identify the activities of firms' earnings management and can be easily misled by managers; (4) max analysts have strong value discovering function, and can reduce investors' misunderstanding about firms' earnings management activities. We prove the value discovering functions of analysts from the perspective of maximum analyst coverage, and provide empirical evidence for the monitoring role of financial analysts in financial market in the reform process of registration system; we also find that investors know little about the firms' information environment. Based on the above conclusions, we suggest that the regulatory authorities should further encourage the firms to engage in the voluntary information disclosure to improve the market efficiency.

Key words: information opacity, analyst coverage, maximum analyst coverage, market reaction

Wu Wuqing, Jie Xiaoxiao, Su Zihao. Information Opacity, Maximum Analyst Coverage and Market Reaction[J]. , 2017, 29(11): 171-182,195.

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