IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v97y2025ics1057521924008020.html
   My bibliography  Save this article

Analysts' initial coverage and stock price crashes

Author

Listed:
  • Geng, Haipeng
  • Wang, Junkai
  • Su, Zhongfeng
  • Tan, Yi
  • Huang, Shihan

Abstract

Initial analyst coverage significantly affects capital markets. This study used a sample of Chinese A-share listed companies from 2007 to 2020 to examine the impact of analysts' initial coverage on stock price crash risk. Analysts' initial coverage can reduce the risk of stock price crashes significantly. We removed “bear and bull market samples” using the two-stage least squares method and changed the indicators to measure stock price crashes, and the conclusions remained unchanged. Mechanism analysis showed that analysts' initial coverage can reduce stock price crash risk primarily due to the intermediary and supervisory effect mechanisms. The pressure effect and cater effect mechanisms were not significant. Compared with star analysts, the initial coverage of nonstar analysts was more significant in reducing stock price crash risk. When an analyst assesses a nonstar company, it can reduce the risk of a stock price crash. Analysts' initial coverage can reduce the risk of stock price crashes in the bear market. The relationship between analyst coverage and stock price crash risk was more pronounced in heavily polluting firms. The findings provide important insights for listed companies on reducing stock price crash risk.

Suggested Citation

  • Geng, Haipeng & Wang, Junkai & Su, Zhongfeng & Tan, Yi & Huang, Shihan, 2025. "Analysts' initial coverage and stock price crashes," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924008020
    DOI: 10.1016/j.irfa.2024.103870
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521924008020
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2024.103870?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yunbiao Ma & Xiaotong Yang & Yuan Zhang & Bing Zhu, 2024. "Product Market Competition and Stock Price Crash Risk: Evidence from China," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 59(03), pages 1-37, September.
    2. Sun, Guanglin & Yin, Ding & Kong, Tao & Yin, Lei, 2024. "The impact of the integration of the digital economy and the real economy on the risk of stock price collapse," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    3. Karl B. Diether & Christopher J. Malloy & Anna Scherbina, 2002. "Differences of Opinion and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2113-2141, October.
    4. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    5. Chen, Yunsen & Xie, Yuan & You, Hong & Zhang, Yanan, 2018. "Does crackdown on corruption reduce stock price crash risk? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 125-141.
    6. Xiaojing Meng, 2015. "Analyst Reputation, Communication, and Information Acquisition," Journal of Accounting Research, Wiley Blackwell, vol. 53(1), pages 119-173, March.
    7. Efraim Benmelech & Eugene Kandel & Pietro Veronesi, 2010. "Stock-Based Compensation and CEO (Dis)Incentives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1769-1820.
    8. Fang, Vivian W. & Noe, Thomas H. & Tice, Sheri, 2009. "Stock market liquidity and firm value," Journal of Financial Economics, Elsevier, vol. 94(1), pages 150-169, October.
    9. Jeong†Bon Kim & Liandong Zhang, 2016. "Accounting Conservatism and Stock Price Crash Risk: Firm†level Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 412-441, March.
    10. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    11. Zhao, Rui & Zhang, Dayong & Guo, Mengmeng, 2024. "Do natural disasters affect stock price crash risk? Evidence from emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 93(C).
    12. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    13. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    14. Xiaojia Zheng & Xuebin Zhang & Ge Yang & Liqing Wang, 2024. "Product market competition, corporate governance and stock price crash risk: Evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 31(12), pages 1150-1158, July.
    15. repec:eme:jaar00:jaar-09-2017-0096 is not listed on IDEAS
    16. Hou, Canran & Liu, Huan, 2023. "Institutional cross-ownership and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 65(C).
    17. Wang, Lina & Cao, Li, 2024. "Analyst attention and corporate green innovation," Finance Research Letters, Elsevier, vol. 60(C).
    18. Jiang, Fuxiu & Ma, Yunbiao & Shi, Beibei, 2017. "Stock liquidity and dividend payouts," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 295-314.
    19. Yi Zhang, 2022. "Analyst coverage and corporate social responsibility decoupling: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(3), pages 620-634, May.
    20. Li, Ying & Lu, Miao & Lo, Y. Ling, 2019. "The impact of analyst coverage on partial acquisitions: Evidence from M&A premium and firm performance in China," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 37-60.
    21. S. P. Kothari & Susan Shu & Peter D. Wysocki, 2009. "Do Managers Withhold Bad News?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 241-276, March.
    22. Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, vol. 58(1), pages 313-351, February.
    23. Ceng Zeng & Song Tang, 2023. "Does common analyst coverage improve suppliers’ investment efficiency?," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 11(3), pages 602-630, July.
    24. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    25. Kousenidis, Dimitrios V. & Ladas, Anestis C. & Negakis, Christos I., 2014. "Accounting conservatism quality of accounting information and crash risk of stock prices," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 120-137.
    26. Sun, Guanglin & Fang, Jiming & Li, Jinning & Wang, Xiaolin, 2024. "Research on the impact of the integration of digital economy and real economy on enterprise green innovation," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    27. Xin Chang & Sudipto Dasgupta & Gilles Hilary, 2006. "Analyst Coverage and Financing Decisions," Journal of Finance, American Finance Association, vol. 61(6), pages 3009-3048, December.
    28. Dong, Guangwu & Tian, Chengrun & Wang, Xining & Wang, Sanchuan, 2024. "Analyst coverage and corporate financing," Finance Research Letters, Elsevier, vol. 59(C).
    29. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "CFOs versus CEOs: Equity incentives and crashes," Journal of Financial Economics, Elsevier, vol. 101(3), pages 713-730, September.
    30. Schaub, Nic, 2018. "The Role of Data Providers as Information Intermediaries," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(4), pages 1805-1838, August.
    31. T. Bourveau & A. Garel & P. Peter Joos & A. Petit-Romec, 2024. "When attention is away, analysts misplay: distraction and analyst forecast performance," Post-Print hal-03844012, HAL.
    32. Darren T. Roulstone, 2003. "Analyst Following and Market Liquidity," Contemporary Accounting Research, John Wiley & Sons, vol. 20(3), pages 552-578, September.
    33. Thomas Bourveau & Alexandre Garel & Peter Joos & Arthur Petit-Romec, 2024. "When attention is away, analysts misplay: distraction and analyst forecast performance," Review of Accounting Studies, Springer, vol. 29(1), pages 916-958, March.
    34. Patricia C. O'Brien & Maureen F. Mcnichols & Lin Hsiou‐Wei, 2005. "Analyst Impartiality and Investment Banking Relationships," Journal of Accounting Research, Wiley Blackwell, vol. 43(4), pages 623-650, September.
    35. Chan, Louis K. C. & Karceski, Jason & Lakonishok, Josef, 2007. "Analysts' Conflicts of Interest and Biases in Earnings Forecasts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 893-913, December.
    36. Du, Bingze & Yu, Jing & Fu, Liling & Ding, Jing, 2024. "Earnings management and analyst forecast," Finance Research Letters, Elsevier, vol. 62(PB).
    37. Xu, Nianhang & Jiang, Xuanyu & Chan, Kam C. & Yi, Zhihong, 2013. "Analyst coverage, optimism, and stock price crash risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 217-239.
    38. Jeffrey L. Callen & Xiaohua Fang, 2017. "Crash Risk and the Auditor–Client Relationship," Contemporary Accounting Research, John Wiley & Sons, vol. 34(3), pages 1715-1750, September.
    39. Chen, Peter F. & Novoselov, Kirill E. & Wang, Yihong, 2018. "Regulatory effects on Analysts' conflicts of interest in corporate financing activities: Evidence from NASD Rule 2711," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 658-679.
    40. Sanghyuk Byun & K. C. Roland, 2022. "Analyst reputation and limited attention: How does firm visibility impact measures of reputation?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(3), pages 603-621, May.
    41. Zhang, Weike & Luo, Qian & Liu, Shiyuan, 2022. "Is government regulation a push for corporate environmental performance? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 105-121.
    42. Tiana Lehmer & Ben Lourie & Devin Shanthikumar, 2022. "Brokerage trading volume and analysts’ earnings forecasts: a conflict of interest?," Review of Accounting Studies, Springer, vol. 27(2), pages 441-476, June.
    43. Francis, J & Philbrick, D, 1993. "Analysts Decisions As Products Of A Multitask Environment," Journal of Accounting Research, Wiley Blackwell, vol. 31(2), pages 216-230.
    44. Brennan, Michael J. & Subrahmanyam, Avanidhar, 1995. "Investment analysis and price formation in securities markets," Journal of Financial Economics, Elsevier, vol. 38(3), pages 361-381, July.
    45. Zhongwei Huang & Thomas Jeanjean & Daphne Lui, 2023. "Analyst independence and earnings management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 598-621, March.
    46. Guanming He & Lu Bai & Helen Mengbing Ren, 2019. "Analyst coverage and future stock price crash risk," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 20(1), pages 63-77, April.
    47. Ivkovic, Zoran & Jegadeesh, Narasimhan, 2004. "The timing and value of forecast and recommendation revisions," Journal of Financial Economics, Elsevier, vol. 73(3), pages 433-463, September.
    48. Yu, Fang (Frank), 2008. "Analyst coverage and earnings management," Journal of Financial Economics, Elsevier, vol. 88(2), pages 245-271, May.
    49. Hu, May & Xiong, Wanfang & Xu, Cheng, 2021. "Analyst coverage, corporate social responsibility, and firm value: Evidence from China," Global Finance Journal, Elsevier, vol. 50(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhuo, Qianru & Lin, Yuanfeng & Qiu, Yajie & Shen, Zhe & Wang, Zhiqiang, 2024. "Employment protection and stock price crash risk: Evidence from China’s introduction of the labor contract law," Research in International Business and Finance, Elsevier, vol. 71(C).
    2. Bing Wang & Kung‐Cheng Ho & Xinyu Liu & Yan Gu, 2022. "Industry cash flow volatility and stock price crash risk," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 356-371, March.
    3. Xi Fu & Xiaoxi Wu & Zhifang Zhang, 2021. "The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 173(3), pages 643-660, October.
    4. Xing, Jieli & Zhang, Yongjie & Xiong, Xiong, 2023. "Social capital, independent director connectedness, and stock price crash risk," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 786-804.
    5. Chen, Yangyang & Fan, Qingliang & Yang, Xin & Zolotoy, Leon, 2021. "CEO early-life disaster experience and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 68(C).
    6. Liu, Guangqiang & Xie, Ziqin & Liu, Xiaowen & Zhang, Siyuan, 2024. "How does finance and accounting supervision affect stock price crash risk?," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    7. Hu, Juncheng & Li, Xiaorong & Duncan, Keith & Xu, Jia, 2020. "Corporate relationship spending and stock price crash risk: Evidence from China's anti-corruption campaign," Journal of Banking & Finance, Elsevier, vol. 113(C).
    8. Kim, Jeong-Bon & Liao, Shushu & Liu, Yangke, 2021. "Married CEOs and Stock Price Crash Risk," QBS Working Paper Series 2021/09, Queen's University Belfast, Queen's Business School.
    9. Wenbing Luo & Ziyan Tian & Xusheng Fang & Mingjun Deng, 2024. "Can good ESG performance reduce stock price crash risk? Evidence from Chinese listed companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 1469-1492, May.
    10. Andreou, Christoforos K. & Andreou, Panayiotis C. & Lambertides, Neophytos, 2021. "Financial distress risk and stock price crashes," Journal of Corporate Finance, Elsevier, vol. 67(C).
    11. Fu, Fanjie & Fang, Jing & Yang, Mei & Yao, Shujie, 2024. "Institutional investor horizons and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 72(PA).
    12. Wang, Xiaoxiao & Liu, Haiming, 2022. "The impact of rollover restriction on stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    13. Leilei Gu & Jinyu Liu & Yuchao Peng, 2022. "Locality Stereotype, CEO Trustworthiness and Stock Price Crash Risk: Evidence from China," Journal of Business Ethics, Springer, vol. 175(4), pages 773-797, February.
    14. Ma, Rui & Guo, Fei & Li, Dongdong, 2024. "Can public data availability affect stock price crash risk? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    15. Lu, Jing & Qiu, Yuhang, 2023. "Does non-punitive regulation diminish stock price crash risk?," Journal of Banking & Finance, Elsevier, vol. 148(C).
    16. Li, Tao & Xiang, Cheng & Liu, Zhuo & Cai, Wenwu, 2020. "Annual report disclosure timing and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    17. Yang, Jun & Lu, Jing & Xiang, Cheng, 2020. "Company visits and stock price crash risk: Evidence from China," Emerging Markets Review, Elsevier, vol. 44(C).
    18. Lu, Xian-wei & Fung, Hung-Gay & Su, Zhong-qin, 2018. "Information leakage, site visits, and crash risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 487-507.
    19. Loureiro, Gilberto & Silva, Sónia, 2022. "Earnings management and stock price crashes post U.S. cross-delistings," International Review of Financial Analysis, Elsevier, vol. 82(C).
    20. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924008020. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.