Can analysts narrow the information gap? How the changes in sell-side equity research coverage affect information asymmetry in Nordic markets?

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Ikäheimo, Seppo Koskinen, Kanerva 2017-03-15T14:31:39Z 2017-03-15T14:31:39Z 2017
dc.description.abstract Background and objectives of the study Equity research and brokerage function has been under turmoil during last decade. Many sources, such as U.S. SEC and major financial newspapers have brought up that increasingly large number of firms have experienced a decrease in their research coverage. With the tightening legislation and profitability, the number of bank analysts is expected to further decrease. Similarly both the industry practitioners and academics seem to have differing opinions about the value sell-side analysts. This thesis examines how the changes in firms’ analyst coverage affect information asymmetry between firms and investors in Nordic markets. The study also takes a brief look at the recent changes in the brokerage industry. These results are aiming to shed light on the value of sell-side equity research coverage and its contribution to the information environment in the market. Information asymmetry is harmful to market participants, since it hinders the capital movements. If we want our markets to function well, it’s important to understand analysts’ role in this asymmetry. This way we can also better plan how research industry’s' future should look like, when trading commissions no longer make a suitable revenue-model. Data and methodology My data consists of observations from listed Nordic firms (Finland, Sweden, Denmark, Norway) between 2005-2014. I use a statistical difference-in-differences method with matched sampling to run the analysis. I aim to identify time series changes in the amount of analysts following, thus each year spot the firms, which have experienced changes (increase or decrease) in coverage compared to last year. Based on this I create two groups, treatment group that consists of firms that experience a change in coverage and control group which experiences no change. I match these groups based on few company variables, to create two identical groups with similar amount of observations. The increase and decrease analysis are run separately. Information asymmetry is proxied by stock bid-ask spreads and trading volumes. I observe the change in this asymmetry by comparing the values of these two variables from year before and year after the change. Finally, I use diff-in-diff method to measure the change between these two time periods and two groups. Empirical findings My results show that decrease in analyst coverage increases information asymmetry, thus widens spreads and decreases trading volumes. However, I can’t find a similar effect with the increase data, thus the effect of change is not symmetrical. This hints, that markets take coverage terminations more seriously than initiations. I find that firm size seems to play a large role in the effect on information asymmetry. Large firms seem to experience a larger decrease in trading volumes after coverage termination, whereas small firms experience a larger change in bid-ask spreads. As small firms are generally more prone to information asymmetry, bid-ask spreads seem to provide a better measure of it. Large firms then again seem to be more vulnerable to investor recognition, than information asymmetry. I also study time series changes in the size of the information asymmetry effect, to find out whether the meaning of coverage changes has changed during recent years and social media era. I find that the size of change is mainly driven by economic cycles, instead of noticing any change between recent years and the past. en
dc.format.extent 61
dc.language.iso en en
dc.title Can analysts narrow the information gap? How the changes in sell-side equity research coverage affect information asymmetry in Nordic markets? en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Laskentatoimen laitos fi
dc.subject.keyword equity analyst en
dc.subject.keyword equity research en
dc.subject.keyword information asymmetry en
dc.subject.keyword Nordic markets en
dc.identifier.urn URN:NBN:fi:aalto-201703152910
dc.type.ontasot Master's thesis en
dc.type.ontasot Maisterin opinnäyte fi
dc.programme Accounting en
dc.subject.helecon laskentatoimi fi
dc.subject.helecon osakemarkkinat fi
dc.subject.helecon sijoitukset fi
dc.subject.helecon tietämyksenhallinta fi
dc.subject.helecon informaatio fi
dc.subject.helecon reaktio fi
dc.subject.helecon Pohjoismaat fi
dc.ethesisid 14924
dc.location P1 I fi

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