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Do analysts affect bad news timeliness?

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  • Alex Young

Abstract

I investigate the effect of analysts on the speed with which bad news is reflected in earnings. Intuitively, the more analysts that cover a firm, the more costly it will be for the firm to keep bad news suppressed. Thus, analyst coverage should positively affect bad news timeliness (BNT) (but not necessarily the differential timeliness of bad news over good news, or conditional conservatism). Using brokerage house mergers as a natural experiment with a difference-in-differences design, I find that an exogenous decrease in analyst coverage decreases BNT; that is, analysts positively affect BNT. The decrease in BNT is robust to controlling for unobserved firm heterogeneity, using a propensity score matched sample, persists for up to three years after the brokerage house merger, and is stronger for firms with relatively low analyst coverage before the merger. The result improves our understanding of how analysts affect a firm's information environment.

Suggested Citation

  • Alex Young, 2018. "Do analysts affect bad news timeliness?," Accounting and Business Research, Taylor & Francis Journals, vol. 48(2), pages 171-189, February.
    • Handle: RePEc:taf:acctbr:v:48:y:2018:i:2:p:171-189
    DOI: 10.1080/00014788.2017.1360174
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