Analyst Coverage and Financing Decisions

Abstract

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

Financial expertise of directors

“…When using credit ratings, we drop firms with no rated debt. 25 Other papers using analyst coverage or analyst disagreement for financial constraints or informational asymmetry include Chang, Dasgupta, and Hilary (2006) and Ajinkya and Gift (1985). 26 Tables are available upon request. 18 tions are unlikely to have bite in either subsample.…”

Speed of Adjustment and Financial Constraints: Evidence from the UK

“…The literature provides for contention on the rate of adjustment as firms tend to deviate from target levels arising from adjustment costs as well as lack of analyst coverage [2,3]. Further empirical prior also show that firms above target levels are quicker to adjust to target levels relative to firms below target levels due to the relatively costlier position [4,5,6] Our purpose of investigating the impact of intrinsic limitations on moment adjustment and distance reduction is well motivated by the literature [7,8,9].…”

Firm Uncertainty and Financial Analysts' Activity

“…In the same vein, Cheng and Subramanyam (2008) specify that more intense firm activity tracking by financial analysts improves the firm's rating. From the opposite side, Chang et al (2006) show that firms largely ignored by financial analysts issue new shares less frequently. Moreover, perceived uncertainty appears to condition investors' willingness to participate in financial markets (Bowen et al, 2008).…”