AJIBM  Vol.8 No.4 , April 2018
Can Analyst Coverage Reduce Stock Price Crash Risk?—Evidence from China
Abstract: Utilizing the date from 2010 to 2016 in China stock market, this paper studies the relation between analyst coverage and stock price crash risk. The result shows that security analyst coverage increases the risk of stock crash. When further dividing the analysts into star analysts and non-star analysts, the research found that the star analyst coverage can decrease stock price crash risk, and non-star analyst coverage can increase the stock price crash risk. And with the rise of star analyst ratio, the stock price crash risk will be lower.
Cite this paper: Huang, D. (2018) Can Analyst Coverage Reduce Stock Price Crash Risk?—Evidence from China. American Journal of Industrial and Business Management, 8, 912-929. doi: 10.4236/ajibm.2018.84063.

[1]   Yu, F. (2008) Analyst Coverage and Earnings Management. Journal of Financial Economics, 88, 245-271.

[2]   Hong, Y., Huseynov, F. and Zhang, W. (2014) Earnings Management and Analyst Following: A Simultaneous Equations Analysis. Financial Management, 43, 355-390.

[3]   Myers, S.C. and Jin, L. (2006) R-Squared Around the World: New Theory and New Tests. Journal of Financial Economics, 79, 257-292.

[4]   Xu, N., Jiang, X., Chan, K.C., et al. (2013) Analyst Coverage, Optimism, and Stock Price Crash Risk: Evidence from China. Pacific-Basin Finance Journal, 25, 217-239.

[5]   Hutton, A.P., Marcus, A.J. and Tehranian, H. (2009) Opaque Financial Reports, R2, and Crash Risk. Journal of Financial Economics, 94, 67-86.

[6]   Kothari, S.P., Shu, S. and Wysocki, P.D. (2009) Do Managers Withhold Bad News? Journal of Accounting Research, 47, 241-276.

[7]   Kim, J.B., Li, Y. and Zhang, L. (2011) CFOs versus CEOs: Equity Incentives and Crashes. Journal of Financial Economics, 101, 713-730.

[8]   Benmelech, E., Kandel, E. and Veronesi, P. (2010) Stock-Based Compensation and CEO (Dis)Incentives. Quarterly Journal of Economics, 125, 1769-1820.

[9]   Kim, J.B. and Zhang, L. (2010) Does Accounting Conservatism and Stock Price Crash Risk: Firm-Level Evidence. Working Paper, City University of Hong Kong.

[10]   Wang, H.C., Cao, F., Gao, S.H., et al. (2014) Investor Protection and Stock Price Crash Risk. Finance & Trade Economics, 35, 73-82.

[11]   Wang, H.C., Cao, F. and Ye, K.T. (2015) Monitoring or Tunneling? The Proportion of the Proportion Held by the Big Shareholders and the Risk of the Crash of the Stock Price. Management World, No. 2, 45-57.

[12]   Wan, D.C. (2015) Audit Fees and Risk of Stock Price Crash. Auditing Research, No. 6, 85-93.

[13]   An, H. and Zhang, T. (2013) Stock Price Synchronicity, Crash Risk, and Institutional Investors. Journal of Corporate Finance, 21, 1-15.

[14]   Barth, M.E. and Hutton, A.P. (2000) Information Intermediaries and the Pricing of Accruals. Working Paper, Stanford University, Stanford, CA.

[15]   Matsunaga, S.R. and Park, C.W. (2001) The Effect of Missing a Quarterly Earnings Benchmark on the CEO’s Annual Bonus. Accounting Review, 76, 313-332.

[16]   Jensen, M.C. (2010) Agency Costs of Overvalued Equity. Financial Management, 34, 5-19.

[17]   Degeorge, F., Ding, Y., Jeanjean, T., et al. (2013) Analyst Coverage, Earnings Management and Financial Development: An International Study. Journal of Accounting & Public Policy, 32, 1-25.

[18]   Li, C.T., Zhao, Y., Xu, X., et al. (2016) Discourage One to Encourage Another: Analysts Following and Corporate Earnings Management Strategy. Journal of Financial Research, No. 4, 144-157.

[19]   Xu, N., Chan, K.C., Jiang, X., et al. (2013) Do Star Analysts Know More Firm-Specific Information? Evidence from China. Journal of Banking & Finance, 37, 89-102.

[20]   Wu, Y.R., Pan, K., Hu, S.M., et al. (2012) A New Explanation of Industry Analyst Earnings Forecast Bias. Economic Research Journal, No. 4, 149-160.

[21]   Pan, Y., Dai, Y.Y. and Liu, S.C. (2011) Do Underwriters Provide Price Support by Analyst Coverage in China? Economic Research Journal, No. 3, 131-144.

[22]   Zhao, L.Y., Li, Z.Q. and Liu, J.X. (2013) The Managers’ Preferences, the Optimization in the Evaluation of the Investment Level and the Obtainment of the Private Information. Management World, No. 4, 33-47.

[23]   Xu, N.H., Jiang, X.Y., Yi, Z.H., et al. (2012) Conflicts of Interest, Analyst Optimism and Stock Price Crash Risk. Economic Research Journal, No. 7, 127-140.

[24]   Pan, Y., Dai, Y.Y. and Lin, C.Q. (2011) Information Opacity, Analysts Following and Crash Risk. Journal of Financial Research, No. 9, 138-151.

[25]   Xiao, H. and Li, S.-X. (2017) The Effect of Other Comprehensive Income Reporting on Analyst Forecasts—From the Perspective of the Characteristics of Enterprise Accounting Information Environment and the Cognitive Ability of Analysts. Journal of Shanxi University of Finance and Economics, No. 12, 100-113.

[26]   Li, Y., Wang, L. and Wang, M.C. (2015) Are Star Analysts’ Recommendation More Profitable?—The Evidence from Media Coverage. Review of Investment Studies, No. 5, 143-160.

[27]   Wu, C.P., Zheng, F.B. and Yang, S.J. (2013) Are Analysts’ Earnings Forecasts and Investment Recommendations Objective? China Economic Quarterly, 12, 935-958.

[28]   Zhang, Z.X. and Yao, P.Y. (2018) Novelty, Risk Averse, or Striving for Perfection?—The Evidence from the Inclination of Star Analysts’ Estimates. Securities Market Herald, No. 1, 46-53.

[29]   Lin, J., Zhou, M.-S. and Dong, Z.-Y. (2017) Does Security Law Enforcement Strengthen Analysts’ Role as External Monitors. Journal of Shanxi University of Finance and Economics, No. 3, 97-110.

[30]   Hu, F. and Xia, Y. (2017) Analysts’ Commercial Motivations and Earnings Forecast Bias: Evidence from Margin Transactions. Journal of Finance and Economics, 43, 45-56.

[31]   Li, D., Yuan, C. and Liao, G.M. (2016) Short Selling and Analyst Optimistic Bias—Based on DID Model. Accounting Research, No. 9, 25-31.

[32]   Dechow, P.M., Sloan, R.G. and Sweeney, A.P. (1995) Detecting Earnings Management. Accounting Review, 70, 193-225.

[33]   Zhou, M.S., Lin, J. and Xu, N.H. (2016) Star Analyst Coverage and Stock Price Synchronicity: Empirical Evidence Based on Market Overreaction. Journal of Management Sciences in China, 19, 49-73.