Investment and financial constraints: Does analyst coverage matter?
Sébastien Galanti  1@  , Aurélien Leroy  2@  , Anne-Gaël Vaubourg  3@  
1 : Laboratoire d'économie d'Orleans  (LEO)  -  Site web
Université d'Orléans, CNRS : UMR7322
bat. A Rue de Blois - BP 6739 45067 ORLEANS CEDEX 2 -  France
2 : Larefi
Université de Bordeaux (Bordeaux, France)
Université de Poitiers, Université de Poitiers

The goal of the paper is to check whether analyst coverage of a firm relaxes its financial constraint. Using a data set that includes Small and Middle Enterprises (SME) from six European countries between 2000 and 2015, we check whether analyst following reduces the sensitivity of investment expenses to cash-flow. We show that firms with a large coverage are less sensitive to cash-flow. We also obtain that the favorable effect of coverage on investment sensitivity to cash-flow is stronger for low-capitalization firms. Our findings suggest that analyst coverage mitigates information asymmetries and relaxes firms' financial constraint, especially for SME.

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