Abstract
Utilizing the date from 2010 to 2016 in China stock market, this paper studies the relation between analyst coverage and stock price crash risk. The result shows that security analyst coverage increases the risk of stock crash. When further dividing the analysts into star analysts and non-star analysts, the research found that the star analyst coverage can decrease stock price crash risk, and non-star analyst coverage can increase the stock price crash risk. And with the rise of star analyst ratio, the stock price crash risk will be lower.
Highlights
As the information intermediaries, with the professional skill, security analysts deliver information to investors and reduce the information opaque between investors and managers, through their research, forecasts, ratings and other activities
The finding show that star analyst coverage is significant negative with crash risk at 10% level, and non-star analyst coverage is significant positive with crash risk at 1% level, which mean that the star analysts may act as an external supervision and constrain the accumulation of bad news, and the not-star analysts increase the crash risk for their systematic optimistic deviation
This paper estimates the relationship between analyst coverage and stock price crash risk depending the sample on 2010 to 2016 in China stock market
Summary
With the professional skill, security analysts deliver information to investors and reduce the information opaque between investors and managers, through their research, forecasts, ratings and other activities. Crash in stock prices is an extreme case of low price efficiency It will reduce the enthusiasm of investors, and harm the healthy development of the capital market, which has attracted wide attention in academia and government. Can security analysts reduce the information opaque between investors and managers, restrain the opportunism of managers and reduce the accumulation of bad news? This paper examines the difference impact of the star analyst and the non-star analyst, and found that their impact on crash risk was completely on the contrary.
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