Supply Shortages in Sell-Side Analyst Coverage

56 Pages Posted: 5 Nov 2014 Last revised: 6 Feb 2023

See all articles by Marco A. Navone

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Fernando Zapatero

Boston University - Questrom School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2022

Abstract

In this paper we argue that the lack of an explicit price for sell-side research leads to shortages of
research supply in response to shocks to the cost of covering a firm. Using changes in firm-specific
uncertainty due to CEO turnovers we document a 9% reduction in analysts' coverage relative to
comparable companies. We confirm our findings using alternative sources of uncertainty (filings of
securities class actions and industry shocks). Focusing on individual analysts, we show that the
probability of dropping coverage is higher for younger analysts, analysts with lower reputation and
higher workloads, factors that indicate higher career concerns and higher marginal production cost.

Keywords: Financial Analysts, Career Concerns, soft-dollar agreement.

JEL Classification: G11, G14, G23

Suggested Citation

Navone, Marco A. and Zapatero, Fernando, Supply Shortages in Sell-Side Analyst Coverage (December 1, 2022). Available at SSRN: https://ssrn.com/abstract=2518836 or http://dx.doi.org/10.2139/ssrn.2518836

Marco A. Navone (Contact Author)

Finance Discipline Group - UTS Business School ( email )

Haymarket
Sydney, NSW 2007
Australia

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti, 25
Milan, 20136
Italy

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Fernando Zapatero

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
126
Abstract Views
1,487
Rank
251,770
PlumX Metrics