Analyst Coverage and Future Stock Price Crash Risk PDF Download

Author: Guanming He
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
Whether financial analysts play an effective role as information intermediaries and monitors has triggered a wide spread of debate among academics and practitioners to date. We complement this debate by investigating the association between analyst coverage and firm-specific future stock price crash risk. Using a large sample of U.S. public firms and the crash risk measure of Hutton et al. (2009), we find strong and robust evidence that a high level of analyst coverage is associated with lower future stock price crash risk, which offers support for the view that analysts serve positive roles as information intermediaries and monitors in the stock markets. We also find that the negative association between analyst coverage and stock price crash risk is stronger for firms that have high financial opacity. Additional analysis reveals that analyst forecast pessimism is negatively associated with future crash risk. Our study is thus of interest to investors who seek analyst reports for their investment decision-making. Also, our findings have some other important implications for practitioners, given the economic and welfare consequences of stock price crashes. Specifically, market participants can use analyst coverage as an indicator to assess future stock price crash risk, as well as the likelihood and extent of insiders' bad news hoarding that results in crash risk; this is particularly relevant to investors for their portfolio investment decisions and to suppliers and creditors who monitor their clients' creditworthiness.

Author: Yvonne I-Fang Lee
Publisher:
ISBN:
Category : Business enterprises
Languages : en
Pages : 60

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Book Description
In this study, I investigate the impact of analyst coverage changes on firms' subsequent firm-specific crash risk. Using a sample of 24,228 firm-year observations from 2000 to 2013, I show that changes in analyst coverage are negatively associated with changes in one-year-ahead crash risk. This result is consistent with analysts' information gathering activities and analyses limiting bad news hoarding behavior, and is generally inconsistent with analyst pressure leading to more bad news hoarding by managers. Moreover, I find the negative association between coverage changes and changes in subsequent crash risk to be more pronounced when the coverage change is attributable to Institutional Investor All-Star analysts. This supports my conjecture that a combination of skills, information acquisition advantages, and reputation allows star analysts to more efficiently disseminate information to the market and reduce the likelihood of future crashes for the firms they cover than their non-star counterparts. My findings are robust to the use of alternative measures of crash risk and after controlling for potential endogeneity. Finally, consistent with the argument that both the investors' demands for analyst coverage and the value analysts can provide through their information acquisition should increase with firm-specific risk, I document a positive association between prior firm-specific crash risk and analyst coverage for the firms. My findings also suggest that star and non-star analysts have distinct decision models and choose what firms to cover based on different factors.

Author: Hasibul Chowdhury
Publisher:
ISBN:
Category :
Languages : en
Pages : 47

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Book Description
We employ a characteristic-based model to decompose total analyst coverage into abnormal and expected components and show that abnormal coverage contains valuable information about individual firm ex-ante crash risk (proxied by implied volatility smirk from options data). Specifically, one standard deviation increase in unexpected or abnormal coverage is associated with a 5.5% decrease in the ex-ante crash risk. The abnormal coverage signal is more useful in firms with a more transparent information environment, proxied by lower analyst dispersed opinions, lower financial opacity, and more comparable financial statements. Collectively, the results suggest that options market investors utilise abnormal coverage to identify and assess crash risk of mispriced firms.

Author: Qunfeng Liao
Publisher:
ISBN:
Category : Earnings management
Languages : en
Pages : 107

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Book Description
Prior literature has shown that managers have incentives to opportunistically and selectively withhold bad news from investors because of career concerns, compensation contracts, litigation risks, earnings targets, and empire building. In their 2006 paper, Jin and Myers develop the "Bad News Hoarding" theory which suggests that when managers conceal bad news for extended periods of time, negative information is likely to get stockpiled within the firm. When managers' incentives for hiding bad news collapse or when the accumulation of bad news reaches a critical threshold level, all of the hitherto undisclosed negative firm-specific shocks become public at once, resulting in an abrupt decline in stock prices. Earnings management (EM) has been identified as the primary means employed by managers to conceal bad news. Earlier studies have shown separately that overvalued firms and firms characterized by high EM are associated with a greater risk of future stock price crash risk. In this thesis, I investigate the joint effect of extreme overvaluation and high EM on future stock price crash risk. It is shown that there is a robust positive relationship between extreme overvaluation accompanied by high EM and one-year ahead stock price crashes for a sample of U.S. public firms during the years 1995-2011. This result is consistent with Jensen's (2004, 2005) argument that when a firm becomes extremely overvalued it sets up organizational forces and incentives that are likely to impair the value of the firm. However, I also find that extremely overvalued firms that are not accompanied by high EM as well as firms with high EM that are not extremely overvalued do not exhibit greater crash risk. The results are robust to alternative proxies of crash risk and EM and hold after controlling for endogeneity. The effects are more pronounced in the post-SOX period and for firms that engage in real earnings management (REM), are small size, or have low analyst coverage. In addition, I find that accrual earnings management (AEM) is positively associated with future stock price crash risk in the early stages of overvaluation whereas REM is positively associated with future stock price crash risk in the late stages of overvaluation. Finally, I find that extreme overvaluation with high EM is negatively associated with future stock price jumps. I interpret these results as suggesting that the incentives to conceal bad news through EM do not necessarily arise in all cases of overvaluation and that both extreme overvaluation and high EM should co-exist for the crash risk to increase. In this way, my results fine tune Jensen's conjecture regarding overvalued firms.

Author: Qinglu Jin
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
Using a difference-in-differences (DID) design, this study examines the effect of shifting from the incurred credit loss model (ICL model) to the expected credit loss model (ECL model) on banks' future stock price crash risk. We find that switching to the ECL model decreases the stock price crash risk of commercial banks. Inspired by Onali et al. (2021), we proceed with cross-sectional tests from the perspectives of opportunistic incentives, information environments, and compliance costs and find that the effect is more pronounced for (i) banks with less opportunistic incentives, proxied by state-owned property rights and managerial ownership; (ii) banks with opaque internal and external information environments, proxied by weak internal control, weak board governance, low analyst coverage, and short auditor tenure; and (iii) banks with lower implementation costs, proxied by less day-one impact and higher levels of accounting conservatism. Channel analyses show that banks increase their asset impairment provisions and the timeliness of loan loss recognition, and there is an increase in the value relevance of earnings and bank efficiency after the adoption of the ECL model. Overall, our evidence suggests that the flexibility of principle-based accounting standards influences banks' stock price crash risk and provides implications that could be helpful to regulators and standard setters.

Author: Xuanyu Jiang
Publisher:
ISBN:
Category :
Languages : en
Pages : 51

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Book Description
Using a rich database of Chinese firms, we examine the proposition that firms with disproportionately more analysts herding, as measured by a larger herding index value, have higher future stock price crash risk. Our findings are consistent with the proposition and are robust to different measures of stock price crash risk, stock price crash risk windows, herding measures, and subsamples. In addition, we document that the positive relation between analyst herding behavior and future stock price crash risk is more pronounced when firms have higher information asymmetry. Furthermore, we find no correlation between analyst herding and positive stock price jumps and firms with disproportionately more analysts herding have greater stock price synchronicity.

Author: Tobias Adrian
Publisher: DIANE Publishing
ISBN: 1437930905
Category : Business & Economics
Languages : en
Pages : 35

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Book Description
This is a print on demand edition of a hard to find publication. The financial crisis of 2007-09 highlighted the changing role of financial institutions and the growing importance of the ¿shadow banking system,¿ which grew out of the securitization of assets and the integration of banking with capital market developments. In a market-based financial system, banking and capital market developments are inseparable, and funding conditions are tied closely to fluctuations in the leverage of market-based financial intermediaries. This report describes the changing nature of financial intermediation in the market-based financial system, charts the course of the recent financial crisis, and outlines the policy responses that have been implemented by the Fed. Reserve and other central banks. Charts and tables.

Author: Andrew Crane
Publisher: Routledge
ISBN: 1000021238
Category : Business & Economics
Languages : en
Pages : 659

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Book Description
As a relatively young subject matter, corporate social responsibility has unsurprisingly developed and evolved in numerous ways since the first edition of this textbook was published. Retaining the features which made the first edition a top selling text in the field, the new edition continues to be the only textbook available which provides a ready-made, enhanced course pack for CSR classes. Authoritative editor introductions provide accessible entry points to the subjects covered - an approach which is particularly suited to advanced undergraduate and postgraduate teaching that emphasises a research-led approach. New case studies are integrated throughout the text to enable students to think and analyze the subject from every angle. The entire textbook reflects the global nature of CSR as a discipline and further pedagogical features include chapter learning outcomes; study questions; ‘challenges for practice’ boxes and additional ‘further reading’ features at the end of each chapter. This highly rated textbook now also benefits from a regularly updated companion website which features a brand new 'CSR Case Club' presenting students and lecturers with further case suggestions with which to enhance learning; lecture slides; updates from the popular Crane and Matten blog, links to further reading and career sites, YouTube clips and suggested answers to study questions. An Ivey CaseMate has also been created for this book at https://www.iveycases.com/CaseMateBookDetail.aspx?id=335.

Author: Yiwei Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 58

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Book Description
We examine the implication of executive gender on asset prices. Using a large sample of US public firms during 2006--2015, we find a negative association between female CFOs and future stock price crash risk. However, the impact of female CEOs on crash risk is not statistically significant. The results support the notion that CFOs play a stronger role than CEOs in curbing bad news hoarding activities because CFOs' primary duties are financial reporting and planning. Our findings are robust to several econometric specifications controlling for potential endogeneity and to alternative measures of crash risk. At last, we show that the negative relation between female CFOs and future stock price crash risk is more pronounced among firms with weaker corporate governance, less market competition, lower analyst coverage, and higher financial leverage. Collectively, our evidence highlights the importance of CFO gender for firm financial decision making and stock return tail risk.

Author: Ahsan Habib
Publisher:
ISBN:
Category :
Languages : en
Pages : 59

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Book Description
We survey the burgeoning literature on the determinants of future stock price crash risk in the US, as well as in countries outside the US. Stock price crash risk, a manifestation of extreme negative values in the distribution of firm-specific returns, has attracted considerable research interests. According to Jin and Myers (2006), when cash flow is lower than investors expect, managers hide the bad news in an effort to protect their jobs. However, when the accumulated bad news finally crosses a tipping point, managers release all the bad news at once, which then results in a stock price crash. We synthesize a vast body of literature on the determinants of crash risk, identify weaknesses, and offer future research opportunities. We categorize the determinants into: (i) financial reporting and corporate disclosures, (ii) managerial incentives and managerial characteristics, (iii) capital market transactions, (iv) corporate governance mechanisms, and (v) informal institutional mechanisms. Despite a large body of research into the determinants of crash risk, very little research attention has been directed towards understanding the consequences of stock price crash.