Exchange Sponsored Analyst Research
Speaker
Abstract
| This study examines the effects and consequences of an exchange-sponsored analyst coverage scheme to evaluate the effectiveness of stock exchanges promoting research coverage for firms. The context of this study is the Research Incentive Scheme pioneered by the Singapore Stock Exchange, under which the exchange acts as a ‘clearing house’ for matching up firms and analysts electing into the Scheme and partially funds the analyst’s research coverage. The empirical evidence reveals that forecasts issued under the scheme have similar bias to those issued by analysts voluntarily following a firm, but are less accurate. The market reactions to revisions are also qualitatively similar across these forecasts. Further, after controlling for self-selection, we document a variety of benefits to a firm from joining the scheme, including: (i) a decline in market surprises at earnings announcements, consistent with analysts improving market’s earnings expectations (ii) a quicker reflection of earnings and non-earnings information in stock prices (iii) an increase in stock price synchronicity, consistent with analyst helping incorporate more industry-wide information, and (iv) an increase in media visibility. We find little evidence that analyst coverage through the scheme improves liquidity or price efficiency. |
| Contact information: |
| Paolo Perego |
