Do Financial Analysts Restrain Insiders’ Informational Advantage?
Date
2018Author
Ellul, AndrewPanayides, Marios
ISSN
0022-10901756-6916
Source
Journal of Financial and Quantitative AnalysisVolume
53Issue
1Pages
203-241Google Scholar check
Metadata
Show full item recordAbstract
By collecting and disseminating price-sensitive information, financial analysts should reduce firm insiders’ informational advantage with a consequent impact on trading dynamics and market quality. We empirically examine the impact of complete analysts’ coverage termination on stocks’ liquidity, price discovery, and insider trading profitability. Termination leads to deteriorating liquidity and price efficiency, more informed trading, and higher profitability of insider trades. The magnitude of these effects depends on the strength of insiders’ ownership and on management’s decision whether to improve the firm’s information environment after coverage termination. Institutional investors alleviate, but do not eliminate, the negative effects of termination.