Self-Selection and Analyst Coverage

Self-Selection and Analyst Coverage

By
Maureen McNichols, Patricia C. O'Brien
Journal of Accounting Research, Studies on Experts and the Application of Expertise in Accounting, Auditing and Tax.
1997, Vol. 35 , Pages 167-199

 This paper examines the relation between analysts’ information about a stock’s future prospects and their decisions to issue investment recommendations and earnings forecasts for that stock, and the implications of this relation for the observed distribution of recommendations and earnings forecast errors. Articles in the financial press have long argued that analysts are reluctant to issue unfavorable investment information, perhaps because they fear jeopardizing potential investment banking business.