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Information conveyed in announcements of analyst coverage

Publication ,  Journal Article
Branson, BC; Guffey, DM; Pagach, DP
Published in: Contemporary Accounting Research
January 1, 1998

This paper examines the security market response to the announcement of sell-side analysts' decisions to initiate coverage of a firm. We examine the market reaction to the initiation announcement and the accompanying investment recommendation, by disaggregating our sample based on existing analyst coverage at the announcement date. We find, on average, a significantly larger, positive stock price reaction to buy recommendations conveyed in announcements of coverage initiation for firms with a small existing analyst following compared to such announcements for firms receiving no prior analyst coverage. Tests show that the relation between the extent of preexisting analyst coverage and market response is nonlinear and concave down in shape. Specifically we find that lightly followed firms, on average, experience larger price reactions to announcements of coverage initiations than either previously uncovered firms or more heavily followed firms. We test for and find that this result holds over a range of definitions of light coverage and is not attributable to the presence of an underwriting relationship existing between the analyst's employer and the firm receiving coverage. We do find that initiations by analysts named to Institutional Investor magazine's "All-American Research Team" produce a significantly larger market reaction than do initiations by non-All-American security analysts. In addition, similar to the market response associated with other types of information events, we observe that proxies for the richness of the initiated firms' preannouncement information environment are associated with event-day average abnormal returns.

Duke Scholars

Published In

Contemporary Accounting Research

DOI

ISSN

0823-9150

Publication Date

January 1, 1998

Volume

15

Issue

2

Start / End Page

119 / 143

Related Subject Headings

  • Accounting
  • 1501 Accounting, Auditing and Accountability
 

Citation

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Branson, B. C., Guffey, D. M., & Pagach, D. P. (1998). Information conveyed in announcements of analyst coverage. Contemporary Accounting Research, 15(2), 119–143. https://doi.org/10.1111/j.1911-3846.1998.tb00552.x
Branson, B. C., D. M. Guffey, and D. P. Pagach. “Information conveyed in announcements of analyst coverage.” Contemporary Accounting Research 15, no. 2 (January 1, 1998): 119–43. https://doi.org/10.1111/j.1911-3846.1998.tb00552.x.
Branson BC, Guffey DM, Pagach DP. Information conveyed in announcements of analyst coverage. Contemporary Accounting Research. 1998 Jan 1;15(2):119–43.
Branson, B. C., et al. “Information conveyed in announcements of analyst coverage.” Contemporary Accounting Research, vol. 15, no. 2, Jan. 1998, pp. 119–43. Scopus, doi:10.1111/j.1911-3846.1998.tb00552.x.
Branson BC, Guffey DM, Pagach DP. Information conveyed in announcements of analyst coverage. Contemporary Accounting Research. 1998 Jan 1;15(2):119–143.
Journal cover image

Published In

Contemporary Accounting Research

DOI

ISSN

0823-9150

Publication Date

January 1, 1998

Volume

15

Issue

2

Start / End Page

119 / 143

Related Subject Headings

  • Accounting
  • 1501 Accounting, Auditing and Accountability