Journal
JOURNAL OF BANKING & FINANCE
Volume 36, Issue 2, Pages 497-508Publisher
ELSEVIER
DOI: 10.1016/j.jbankfin.2011.08.006
Keywords
Analyst coverage; Accruals quality; Information asymmetry; Private information; Operating uncertainty
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We provide evidence that analyst coverage increases as accruals quality decreases. This finding is consistent with the services of financial analysts becoming more valuable and in greater demand as accruals provide weaker signals about future cash flows. Further, it is accruals quality associated with innate uncertainty in the firm's operating environment that attracts analysts even after controlling for operating uncertainty associated with cash flow and stock return volatility. This suggests that low quality accruals provide an opportunity for analysts to benefit from generating private information. Consistent with analysts providing compensating information, we find that forecasts for firms with lower accruals quality contain more private information. (C) 2011 Published by Elsevier B.V.
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