Do changes in star selection criteria affect analyst behaviour?

Abstract

This study examines whether the star analyst selection criteria affect analysts’ coverage decisions and the informativeness of their reports. We focus on a change to the star evaluation criteria that increased the importance of quantitative standards. After the reform, analysts tend to cover firms with smaller sizes, lower profitability, lower growth, and higher systematic risk. We find that post-reform analyst coverage is positively associated with both the level of and change in stock price synchronicity, indicating that analyst reports provide market-wide information.