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Analyst Coverage and Financing Decisions


  • Gilles Hilary

    (HKUST - Hong Kong University of Science and Technology)

  • Sudipto Dasgupta

    (HKUST - Hong Kong University of Science and Technology)

  • Xing Chang


We provide evidence that analyst coverage affects the pattern of security issuance. First, firms covered by fewer analysts are less likely to issue equity as opposed to debt. They issue equity less frequently, but when they do so, it is in larger amounts. Moreover, these firms depend more on favorable market conditions for their equity issuance decisions. Although all firms issue larger amounts of equity after favorable stock returns, this tendency is more pronounced for less covered firms. Finally, debt ratios of firms followed by fewer analysts are more affected by Baker and Wurgler's (2002) external finance-weighted average market-to-book ratio than those of firms followed by more analysts. These results are consistent with market timing behavior in the presence of information asymmetry, as well as behavior implied by dynamic adverse selection models of equity issuance.

Suggested Citation

  • Gilles Hilary & Sudipto Dasgupta & Xing Chang, 2006. "Analyst Coverage and Financing Decisions," Post-Print hal-00481946, HAL.
  • Handle: RePEc:hal:journl:hal-00481946
    DOI: 10.1111/j.1540-6261.2006.01010.x

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