This study examines whether financial analysts
produce larger amounts of research output and whether their research is more
valuable for investors following a debt covenant violation (DCV, hereafter).
After a DCV, investor uncertainty about firm value and information asymmetry
among stakeholders likely increases. It is therefore difficult for investors to assess firm prospects,
resulting in increased demand for firm-specific information. Sell-side
analysts, as sophisticated information intermediaries, are skilled at gathering
and processing information; thus they are well-suited to provide more research
output in response to increased investor demand. I predict and find that equity
analysts provide a larger amount of research, proxied by recommendation revisions
and earnings forecast revisions, after a DCV. I also document an incremental
association between a DCV and analyst research production for firms with less
financial flexibility, firms with low institutional ownership, and firms
covered by more experienced analysts. In addition, I find evidence that analyst
research becomes more valuable and that uncertainty-adjusted analyst forecast
errors decrease following a DCV. These results suggest that a change in a
firm’s information environment associated with a DCV has significant influence
on investors and equity analysts besides the economic consequences documented
in prior literature.
| Identifer | oai:union.ndltd.org:purdue.edu/oai:figshare.com:article/12631928 |
| Date | 09 July 2020 |
| Creators | Rixing Lou (9105083) |
| Source Sets | Purdue University |
| Detected Language | English |
| Type | Text, Thesis |
| Rights | CC BY 4.0 |
| Relation | https://figshare.com/articles/thesis/Do_Sell-Side_Analysts_Provide_More_Information_Following_Debt_Covenant_Violations_/12631928 |
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