This paper addresses exactly your question:

Jo, H. and Harjoto, M., 2014. Analyst coverage, corporate social responsibility, and firm risk. Business Ethics: A European Review, 23(3), pp.272-292.

Article Analyst coverage, corporate social responsibility, and firm risk

you can refer to

Do Analysts Matter for Corporate Social Responsibility? Evidence from Natural Experiments

Hi Mousumi Bhattacharya

Thanks you, but could you give the name of the auithors, the date of publication and the name of the Journal where it was published.

greetings.

Hi,

I found a new nice paper:

B K Adhikari, "Causal effect of analyst following on corporate social responsibility"

Journal of corporate finance, 2016, 41, p 206 - 216

Best regards.

Dear Patrick,

There is empirical evidence from the USA that the majority of publicly traded companies, which are not the "blue chips" companies, are not covered by buy-side analysts due to the high number of companies (above 20,000 including those traded over the counter) and the low number of analysts (few hundreds). Also, there is evidence that companies not covered actively look for analysts and pay analysts just to get coverage and to inform the market about itself (please refer to Coffee's book "The Gatekeepers" for further reference). I suppose that companies which are really interested in analyst coverage behave in this way because they have something to show to the market. CSR may be the kind of information they would like to present.

Paul

Hi Paul,

Thanks for your answer. it is true that some firms would be willing to pay a lot for analysts to promote their CSR efforts. But conversely, at the other extreme of the spectrum,  I think that analysts may be a disciplinarian device. Thus if their number decreases, it will allow the firm to be less CSR efficient.

Best regards.

Dear Patrick,

This is true, indeed! At least in theory, analysts are not supposed to be marketing tools for the companies, but information providers for investors. Clearly, if the oversight conducted by the analysts deteriorates, there are less incentives for the companies to be CSR efficient.

Paul 

Hi Patrick,

I agree with the opinion that CSR is an agency problem (Adhikari, 2016), but also with Dong et al (2015) - the paper cited by Mousumi -.

However, I think that the coverage of the financial analysts decreases the agency problems. In theory, they should represent a good monitoring tool (Jensen and Meckling, 1976).

In my opinion, the real problem is: what is the right number of financial analysts that should cover the firm? Furthemore, it is correct to do a distinction between analysts and brokers. It is quite frequent to find few brokers and many analysts that follow the company, but are always the same.

At the same time, it is frequent to find (at least in Italy) higher coverages only for some years while for other years the coverage is lower.

If few analysts follow many firms, it is possible that since they are busy don't follow in a correct way the firm.

Greetings,

Fabrizio

Dear  Fabrizio,

You are right in saying that we should make a distinction between analysts from the brokerage side and other analysts, that we deem independent. Although there may be safeguards at place in the brokerage firms to enhance analyst independence I am sceptical as to whether the safeguards work in reality.

However, I am not sure whether we can arrive at the right number of financial analysts that should cover the firm. A provision could be introduced to make coverage of say, two, analysts mandatory to listed companies. But I am afraid that such a provision would lead to oligopoly of some big players that we can already see in the audit market. 

In my view this is rather a question of the qualification and the capability of the analysts. I think the market will follow the analysts who can provide comprehensive forecasts and who succeed in beating the market. Of course, I know that  beating the market does not work in the long-term. However, if we speak about qualification and capability, our focus is not on the mere number of analysts any more.

Paul

Dear Paul,

Many thanks for your useful comment. Maybe I explained badly the concept. Analysts are employed by the brokers. The task of the analyst is to increase the level of informative symmetry, and not that to beat the market (on the side of agency problems). In addition, skills and qualifications might not be reconciled with multiple commitments.

However, I find your comment interesting. Do you have some empirical paper that support your concept? If yes, I would like read the paper very carefully.

Best,

Fabrizio

Dear Fabrizio,

I have not undertaken specific research into this topic, but I made some reading, so I can refer you to the following literature:

- Fisch, J. and Sale, H. (2003). The Securities Analyst as Agent: Rethinking the Regulation of Analysts, Iowa Law Review 88, p. 1035.

- Davis, A. (March 11, 2004). Wall Street, Companies it Covers, Agree on Honesty Policy, Wall Street Journal.

- Choi, S. and Fisch, J. (2003). How to fix Wall Street: A Voucher Financing Proposal for Wall Street. Yale Law Review 269

- Orcutt, J. L. (2003). Investor Scepticism vs. Investor Confidence: Why the new Research Analyst Reforms Will harm Investors, Denver University Law Review 81 (1)

- Bradley, D., Jordan, B. and Ritter, J. (2004), Analyst Behavior Following IPO: The "Bubble Period" Evidence. Working Paper

- Farzard, R. (August 8, 2004). Back to Basics: A Year and Half After Elliot Spitzer Tried to Clean up Wall Street Research, The Jury is Still Out on Whether Honest Research Can Pay. Financial Wire

- Michaely, R. and Womack, K. L. (1999). Conflict of Interest and the Credibility of Underwriter Analyst Recommendations. Review of Financial Studies 12, p. 653.

- Lin, H. W. and McNichols, M. (1998). Underwriter Analysts' Earnings Forecasts and Investment Recommendations. Journal of Accounting and Economics 25, p. 101.

Paul

Paul,

Many thanks. Anyhow, do you know some article less dated of those listed?

Best,

Fabrizio