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Distracted financial analysts and the value of corporate cash holdings

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  • Xiaolin Xue
  • Yilan Liang
  • Bin Li

Abstract

This study investigates the effect of analysts’ limited attention on firm value. Specifically, by exploiting industry shocks to identify exogenous variations in analysts’ attention to firms, this study investigates how distracted analysts affect the value of cash holdings. Consistent with a reduction in information production and monitoring intensity, we find that firms with distracted analysts have lower value of cash holdings. Further analysis reveals that the negative relationship between analyst distraction and cash holding value is more pronounced for firms with fewer analyst followers, increasing cash, operations in non-competitive industries, and opaque information environments. This suggests that distracted analysts contribute to a greater decrease in cash holding value when analyst monitoring intensity is more significant, there are more cash reserves for managerial discretionary use, and other corporate governance mechanisms are weaker. This study contributes by demonstrating the consequences of analysts’ limited attention on firm value and providing evidence to support the monitoring effect of financial analysts.

Suggested Citation

  • Xiaolin Xue & Yilan Liang & Bin Li, 2026. "Distracted financial analysts and the value of corporate cash holdings," Applied Economics, Taylor & Francis Journals, vol. 58(4), pages 794-814, January.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:4:p:794-814
    DOI: 10.1080/00036846.2025.2459366
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