Insights

Financial analysts are professionals who specialize in financial analysis, providing expert investment advice and analysis reports by analyzing financial markets, interpreting company financial data, forecasting stock values, and assisting investors in making wiser investment decisions.

In the field of financial analysis, analysts who focus on product quality concentrate on analyzing the quality of the firm's products. By studying product issues and uncovering information related to the products, they aim to draw attention to or reveal potential product quality issues to the firm and the market.

A study by Professor Wang Xiaoqiao of the School of Management and Economics, The Chinese University of Hong Kong, Shenzhen, Wall Street and Product Quality: The Duality of Analysts reveals the dual role financial analysts play in product quality issues. Recently, this paper has been accepted by the top international journal, The Accounting Review.

Author

Wang Xiaoqiao

Assistant Professor, School of Management and Economics, CUHK-Shenzhen

Research Area

Product Market Relations, Capital Markets, Information Disclosure Strategies, Legal and Finance

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.