Does analysts following impede information asymmetry? Evidence from analyst coverage firms
by Ramesh Chandra Das
International Journal of Comparative Management (IJCM), Vol. 3, No. 4, 2020

Abstract: This paper presents evidence that analyst following reduces the information asymmetry by showing the impact of analyst coverage on information asymmetry. To establish the relationship, panel fixed effect model is used for the period 2014-2018 in specific context of India. The evidence is consistent with the hypothesis that analysts following can cause information asymmetry in financial reporting. Further, the study finds that analysts following work as an external monitor, leads to less asymmetry information and supports the monitoring hypothesis. The findings of this study have implications for investment analysts, rating agencies as well as the regulators. The financial analysts and investment advisors need to be circumspect about the companies' earnings management practices. The accounting regulators can also examine the impact of New Companies Act, 2013 and IFRS on earnings management practices in due course of time. The credit rating agencies can also factor the earnings management during the time of rating of companies and financial instruments. Investors need to be careful while investing money of that particular company when that company is being followed by more number of analysts following.

Online publication date: Fri, 09-Apr-2021

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