Do analysts cater to investor information demand?

Purpose - The purpose of the study is to examine whether analyst coverage responds to changes in investor information demand for a firm and to test whether certain investor or firm characteristics moderate this association. Design/methodology/approach - The authors model analyst activeness (AA) as a function of institutional investors' information demand, proxied by news readership on Bloomberg terminals and retail investors' information demand, proxied by the Google Search Volume Index (GSVI). Additionally, the authors take several steps to mitigate concerns about reverse causality that may confound the findings. Findings - Results suggest that analysts respond to information demand shocks, but partially revert their coverage after the demand shock subsides. Furthermore, the results suggest that analysts cater their coverage more towards institutional investors than to retail investors. Evidence also suggests that analysts are more responsive to investors interested in firms with tech stock characteristics. Finally, the authors find evidence that specialist analysts respond more to institutional investors while generalist analysts respond more to retail investors. Originality/value - The authors are the first to empirically examine the extent to which analysts cater to investor information demand. This is a vital topic to study because analysts are one of the primary sources of information for market participants. Understanding an analyst's motivation for providing information will help to facilitate market efficiency.