The Effects of Reporting Frequency on Analyst Coverage Decisions

Abstract

Using hand-collected data on analyst coverage decisions, we study how changes in reporting frequency affect analyst coverage decisions for European firms along with the impact on their forecast performance. Following the enactment of the Transparency Directive, we find that analysts’ expertise, with respect to greater reporting frequency, significantly influences the coverage decision. Particularly, analysts, with higher levels of disclosure expertise, are 150% more likely to initiate new coverage for firms that increase their disclosure frequency. Moreover, we identify that this type of analyst primarily produces firm-specific information as their initiations lead to increased firm-specific volatility, which signals more information-laden stock prices. Subsequently, analysts also provide significantly more accurate forecast on firms with changes in their reporting frequency. Overall, our findings indicate that reporting frequency not only directly impacts the available information about a firm, but also indirectly, by affecting the strategic coverage decisions of information intermediaries.