Corporate watchdogs. Issue 4 (8th October 2019)

• Record Type: Journal Article
• Authors: Navone, Marco; To, Thomas
• Is Part Of: Financial management. Volume 49:Issue 4(2020:Winter)
• Page Start: 925
• Page End: 947
• Publication Date: 2019-10-08
• Subjects: financial analysts -- litigation risk -- managerial misbehavior; Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12291
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: We investigate the role of financial analysts as corporate watchdogs. We show that firms that are subject to intense analyst monitoring are more likely to be investigated by the Securities and Exchange Commission or to be the subject of a securities class action. Using cross‐sectional variations in managerial entrenchment, we find that this effect is not a reflection of the "dark side of analyst coverage, " analysts pushing executives to misbehave to exceed short‐term expectations. Our findings are robust to different identification strategies addressing the endogeneity of analyst coverage decisions.