THE IMPACT OF SECURITY ANALYSTS MONITORING AND MARKETING FUNCTIONS ONTHE MARKET VALUE OF FIRMS

In this study, we examine the impact of security analysts' monitoring and marketing functions on firms' market value, We postulate that secu rity analysts' monitoring of corporate performance helps motivate mana gers, thus reducing the agency costs associated with the separation of ownership and control. We also argue that the information intermediar y function provided by security analysts helps expand the breadth of i nvestor cognizance. Consistent with these conjectures, this study find s that analyst following exerts a significant and positive impact on f irms' market value. We also find evidence that security analysts have a stronger incentive to follow stocks of high quality companies, since such stocks are easier to market. Hence, the security analysis activi ties appear to be determined, in part, by the marketing considerations of brokerage companies.