Wall Street and Product Quality: The Duality of Analysts

56 Pages Posted: 28 Apr 2021 Last revised: 28 Mar 2024

See all articles by Yinghua Li

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Yupeng Lin

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN)

Xiaoqiao Wang

The Chinese University of Hong Kong, Shenzhen

Shijie Yang

Southern University of Science and Technology

Date Written: March 28, 2024

Abstract

We investigate the role of financial analysts in product quality failures. Relying on information about product recalls, we first show that analyst coverage on average reduces product quality, particularly when managers face greater short-term pressure from institutional investors. However, after identifying a subgroup of analysts who raise questions on product-related issues in earnings conference calls, we find that coverage by these “product analysts” enhances rather than compromises product quality. Firms with greater product analyst coverage are also more likely to retire low-quality products. Additional analysis demonstrates that product analysts help safeguard product quality by further probing into product-related matters and issuing more timely recommendation downgrades after firms announce product deficiencies.

Keywords: analyst coverage, information intermediation, product quality, product analysts, capital market pressure, stock price informativeness

JEL Classification: G24, G34, G38, L15

Suggested Citation

Li, Yinghua and Lin, Yupeng and Wang, Xiaoqiao and Yang, Shijie, Wall Street and Product Quality: The Duality of Analysts (March 28, 2024). Available at SSRN: https://ssrn.com/abstract=3831836 or http://dx.doi.org/10.2139/ssrn.3831836

Yinghua Li

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://wpcarey.asu.edu/people/profile/2386522

Yupeng Lin (Contact Author)

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN) ( email )

Singapore

Xiaoqiao Wang

The Chinese University of Hong Kong, Shenzhen ( email )

Shijie Yang

Southern University of Science and Technology ( email )

1088 Xueyuan Avenue
Nanshan District
Shenzhen, Guangdong 518055
China

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