Analyst coverage and types of institutional investors

Kam C. Chan (Gordon Ford College of Business, Western Kentucky University, Bowling Green, Kentucky, USA)
Feida Zhang (Sun Yat‐Sen Business School, Sun Yat‐Sen University, Guangdong, People's Republic of China)
Weining Zhang (Cheung Kong Graduate School of Business, Beijing, People's Republic of China)

Review of Accounting and Finance

ISSN: 1475-7702

Publication date: 15 February 2013



The purpose of this paper is to study the relationship between institutional holdings and analyst coverage in the context of the heterogeneous nature of institutional investors.


Similar to prior studies (e.g. Ke and Ramalingegowda; Ramalingegowda and Yu), this paper obtains institutional investors' trading classifications (transient, dedicated, and quasi‐indexing) from Brian Bushee directly. To examine the hypotheses, the paper uses a two‐step instrumental variable approach demonstrated in O'Brien and Bhushan to mitigate the simultaneity relationship between the change in analyst coverage and the change in the number of heterogeneous institutional investors.


The findings suggest that such relations are different among transient, dedicated, and quasi‐indexing institutional investors. Specifically, there are three major results. First, a change to the number of analyst coverage has the lowest impact on the change in the number of dedicated institutional investors. Second, a change in the number of transient institutional investors has a higher impact on change in analyst coverage than those for change in the number of dedicated and quasi‐indexing institutional investors. Third, changes to analysts' buy or sell recommendations have the least impact on the change in the number of dedicated institutions, relative to transient and quasi‐indexing institutions.

Research limitations/implications

The findings suggest that institutional investors are not homogeneous. Research studies on institutional investors need to disentangle the differences among different types of institutions.


The paper provides a comprehensive study on different institutional investors and analyst coverage. The findings show the complex nature of the interaction between institutional investors and analyst coverage.



Chan, K., Zhang, F. and Zhang, W. (2013), "Analyst coverage and types of institutional investors", Review of Accounting and Finance, Vol. 12 No. 1, pp. 60-80.

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