The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage

  • Published: Jul 16, 2013
  • Pages: 1407-1440
  • DOI: 10.1111/jofi.12042


We study the causal effects of analyst coverage on corporate investment and financing policies. We hypothesize that a decrease in analyst coverage increases information asymmetry and thus increases the cost of capital; as a result, firms decrease their investment and financing. We use broker closures and broker mergers to identify changes in analyst coverage that are exogenous to corporate policies. Using a difference‐in‐differences approach, we find that firms that lose an analyst decrease their investment and financing by 1.9% and 2.0% of total assets, respectively, compared to similar firms that do not lose an analyst.

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