How Do Visits from Analysts Influence Company Risks?

In China, companies listed on the stock exchange are under constant scrutiny. One interesting aspect is how visits from institutional analysts affect how these companies take risks.

The Surprising Impact of Analyst Visits

Researchers looked into this and found something surprising:

• More visits in one year can lead to managers taking bigger risks the following year.
• This often results in lower earnings quality, meaning the company's financial performance isn't as strong.

The Role of Company Type

The type of company matters a lot:

• State-Owned Enterprises (SOEs):
• Having concentrated shareholding and management power actually reduces risk-taking.
• This is the opposite of what usually happens.
• Normally, concentrated power is seen as a bad thing for corporate governance.

• But in SOEs, it seems to have a positive effect.

• Non-State-Owned Companies:
• Concentrated power leads to even more risk-taking.
• Why? It might have to do with the political connections of the managers.
• When managers are under the spotlight, they tend to be more cautious.
• They don't want to take risks that could hurt their reputation or their political career.
• This is especially true for SOEs, where political connections play a big role.

The Bigger Picture

So, what does this all mean?

• It shows that the relationship between analyst visits, management structure, and risk-taking is complex.
• It's not just about the number of visits or the type of company.
• Political connections and market focus also play a significant role.
• Understanding these dynamics can help investors and policymakers make better decisions.