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Analyst Coverage around Mergers & Acquisitions
Mengxin Zhao, Bentley College
Julie L Zhu, Columbia Business School
ABSTRACT. We study the determinants of analyst coverage by examining analyst turnover around mergers and acquisitions (M&As). 57% (78%) of analysts covering the acquiring (target) firm drop coverage, and 58% of the analysts initiated coverage for the merged firm. This turnover results from an adjustment in coverage by analysts and their affiliated investment banks in response to changes in firms and industries due to M&As. Specifically, 1) investment banks’ strategic adjustment of coverage for the firms whose industries are expected to undergo significant changes due to M&As; 2) firm and deal characteristics, as well as market reactions to deal announcement; and 3) the quality of individual analysts, are important determinants of analyst coverage.
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