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The Impact of Security Analysts' Monitoring and Marketing Functions on the Market Value of Firms

Published online by Cambridge University Press:  09 June 2010

Kee H. Chung  and
Hoje Jo
Kee H. Chung
Affiliation:
Department of Finance, Fogelman College of Business and Economics, The University of Memphis, Memphis, TN 38152
Hoje Jo
Affiliation:
Department of Finance, Leavey School of Business, Santa Clara University, Santa Clara, CA 95053.
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Abstract

In this study, we examine the impact of security analysts' monitoring and marketing functions on firms' market value. We postulate that security analysts' monitoring of corporate performance helps motivate managers, thus reducing the agency costs associated with the separation of ownership and control. We also argue that the information intermediary function provided by security analysts helps expand the breadth of investor cognizance. Consistent with these conjectures, this study finds that analyst following exerts a significant and positive impact on firms' market value. We also find evidence that security analysts have a stronger incentive to follow stocks of high quality companies, since such stocks arc easier to market. Hence, the security analysis activities appear to be determined, in part, by the marketing considerations of brokerage companies.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 31 , Issue 4 , December 1996 , pp. 493 - 512
Copyright
Copyright © School of Business Administration, University of Washington 1996

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