Analyst Coverage and Expected Crash Risk: Evidence from Exogenous Changes in Analyst Coverage

Using brokerage mergers and closures as two sources of exogenous shock to analyst coverage, this study explores the causal effect of analyst coverage on ex ante expected crash risk as captured by the options implied volatility smirk. We find a significant increase in a firm's ex ante expected crash risk subsequent to an exogenous drop in analyst coverage; this positive effect is stronger for firms initially receiving less coverage. Further, we...