The role of sell-side analysts after accusations of managerial misconduct

Prior research questions the general informational role of analysts by documenting inefficiencies, biases, and limitations of their research. Rather than examine the general informational value of analyst research, I examine the value of analyst research in a specific setting—shareholder lawsuits—when investors demand information but other information providers are limited in their ability to provide it. After the lawsuit’s filing, the demand for and production of management-provided information decreases. I argue that analysts are uniquely qualified to provide a portion of the information demanded by investors after the lawsuit’s filing. I find evidence consistent with analysts providing more research that is more informative after the lawsuit’s filing. This study provides contrasting evidence to the literature that is critical of analysts by documenting that analysts are able to produce useful information when investors demand it, despite a potential reduction in the demand for or production of management-provided information.