Do Financial Analysts Restrain Insiders' Informational Advantage?

This paper investigates the competitive relationship between sell-side analysts and firm insiders for price-sensitive information. Without the presence of research analysts, firm insiders have a complete monopoly over information, influencing market equilibrium in general and liquidity in particular. Research analysts should reduce the insiders' informational advantage with a consequent beneficial improvement in traders' welfare. The authors investigate this hitherto ignored role of analysts by using a sample of stocks that lost complete analyst coverage, thus giving insiders complete monopoly over price-sensitive information.