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How Does Analyst Coverage Influence Corporate Leverage Adjustment: Evidence from China

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  • Renji Sun
  • Kung-Cheng Ho
  • Chiu-Lan Chang
  • Sijia Luo

Abstract

This study investigates the influence of analyst coverage on corporate leverage adjustment (CLA) in China. We analyzed 26,673 firm-year observations from the Shanghai and Shenzhen stock exchanges from 2000 to 2020 and found that analyst coverage had a negative impact on CLA, which was stronger in firms with poor performance. We posit that analyst forecast divergence and pressure-induced managerial myopia are possible mechanisms through which analyst coverage influences CLA. Our study contributes to the dynamic trade-off model literature by demonstrating that analyst coverage is also a determinant of CLA. Furthermore, our findings help regulators and investors to comprehensively understand the role of analysts in emerging markets.

Suggested Citation

  • Renji Sun & Kung-Cheng Ho & Chiu-Lan Chang & Sijia Luo, 2022. "How Does Analyst Coverage Influence Corporate Leverage Adjustment: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(13), pages 3881-3897, October.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:13:p:3881-3897
    DOI: 10.1080/1540496X.2022.2073815
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