Which Firm Characteristics Affect Foreign Analyst Coverage? Evidence from the Taiwan Stock Market

Abstract

This study investigates the association between firm characteristics and foreign analyst coverage. Using a sample of 366 firms listed on the Taiwan Stock Exchange that were followed by foreign analysts from January 2006 to June 2012, I employ the finite Tobit regression mixture model to analyze which firm characteristics influence foreign analyst coverage. The results find that mixture model may express differential influences on analyst coverage based on the heterogeneity of firm characteristics in different subgroups. Price-to- book ratio, firm size, and institutional ownership are the important characteristic variables that influence foreign analyst coverage. Among them, price-to- book ratio and foreign analyst coverage may present an inverted U-shaped or a U-shaped correlation in different subgroups. Also, there is an endogenous relationship between foreign analyst coverage and foreign institutional ownership, and thus, the characteristics of target firms followed by foreign analysts resulting from changes in foreign institutional ownership cannot be ignored. Finally, I also find that large-sized firms with high institutional ownership and medium stock turnover rate have the highest probability of being followed by foreign analysts.