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Do Analysts' Preferences Affect Corporate Policies?

Author

Listed:
  • Francois Degeorge

    (University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI))

  • François Derrien

    (HEC Paris - Finance Department)

  • Ambrus Kecskes

    (York University - Schulich School of Business)

  • Sebastien Michenaud

    (Kellstadt Graduate School of Business)

Abstract

Equity research analysts tend to cover firms about which they have favorable views. We exploit this tendency to infer analysts' preferences for corporate policies from their coverage decisions. We then use exogenous analyst disappearances to examine the effect of these preferences on corporate policies. After an analyst disappears, firms change their policies in the direction opposite to the analyst's preferences. The influence of analyst preferences on policies is stronger for firms for which analyst coverage is likely to matter more: young firms, and firms with higher market valuations. Our results suggest that firms choose their corporate policies, in part, to be consistent with the preferences of their analysts.

Suggested Citation

  • Francois Degeorge & François Derrien & Ambrus Kecskes & Sebastien Michenaud, 2013. "Do Analysts' Preferences Affect Corporate Policies?," Swiss Finance Institute Research Paper Series 13-22, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1322
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2253619
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    Citations

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    Cited by:

    1. David A. Becher & Jonathan B. Cohn & Jennifer L. Juergens, 2015. "Do Stock Analysts Influence Merger Completion? An Examination of Postmerger Announcement Recommendations," Management Science, INFORMS, vol. 61(10), pages 2430-2448, October.
    2. Bradley, Daniel & Gokkaya, Sinan & Liu, Xi & Xie, Fei, 2017. "Are all analysts created equal? Industry expertise and monitoring effectiveness of financial analysts," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 179-206.
    3. Marcet, Francisco, 2017. "Analyst coverage network and stock return comovement in emerging markets," Emerging Markets Review, Elsevier, vol. 32(C), pages 1-27.
    4. Felipe Cortes & Francisco Marcet, 2023. "Analysts’ Connections and M&A Outcomes," Management Science, INFORMS, vol. 69(7), pages 4108-4133, July.

    More about this item

    Keywords

    Equity research analysts; Preferences; Real effects; Investment; Financing; Payouts; Leverage; Cash holdings;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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