Firm Characteristics and Level of Analyst Services : An Empirical Investigation

This paper examines the relationship between financial analysis levels and identifiable firm characteristics. The full text of 187 sell-side analyst reports is coded using content analysis. Publicly available information is searched to identify potential sources of the coded information. Source results are used to measure analyst effort, where information cited by the analyst but having no identifiable source is assumed to require the greatest effort, and information taken from financial statements requires the lowest effort. Thus, effort is an increasing function of the level of non-financial-report information cited. Empirical analysis applies nonlinear estimation techniques, using the Poisson distribution for count data, to the relationship between nonreport information cited and firm characteristics. Results identify positive relationships between the measure of analyst effort and firm complexity and trading volume. Negative relationships are identified between effort level and inside ownership, firm disclosure quality, earnings variability, and level of coverage by other analysts. In addition, a positive relationship is identified between size and effort