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CFA Digest, 1(43), p. 45-47

DOI: 10.2469/dig.v43.n1.50

Elsevier, Journal of Banking and Finance, 1(37), p. 89-102

DOI: 10.1016/j.jbankfin.2012.08.014

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Do star analysts know more firm-specific information? Evidence from China

Journal article published in 2013 by Nianhang Xu, Zhihong Yi, Kam C. Chan ORCID, Xuanyu Jiang, Butt Man-Kit
This paper is available in a repository.
This paper is available in a repository.

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Abstract

Using a unique database in China, we extend the literature to further distinguish the information production role of star vs. non-star analysts. We confirm the general conclusion of a positive association between analyst coverage and stock return synchronicity measured by a firm’s R2 in China. The findings from star analysts, however, show that star analyst coverage actually decreases stock return synchronicity. We contend that the firm-specific human capital in star analysts helps the analysts overcome the challenges of information production in an emerging market. The superior firm-specific human capital argument of star analysts is further supported by the negative association of star analysts’ firm-specific experiences and stock return synchronicity. Our conclusions are robust to different specifications of star analyst presence and different definitions of analysts’ firm-specific experiences. We also find that star analysts exhibit a more accurate earnings forecast than non-star analysts.