# Risk seeking or averse, how do analyst coverage and firm visits motivate managers?

## TL;DR

The paper examines how institutional analyst visits influence corporate risk-taking in Chinese firms, finding that visits increase risk-taking, but this effect is reduced in state-owned enterprises with strong management control.

## Contribution

The study reveals how political connections and ownership structure moderate the impact of analyst visits on managerial risk-taking.

## Key findings

- More frequent analyst visits lead to increased risk-taking and lower earnings quality in firms.
- In state-owned enterprises, concentrated shareholding and management power reduce risk-taking.
- Political connections make managers in SOEs more risk-averse under market scrutiny.

## Abstract

In this research, we use Chinese stock exchange listed firm data to explore the relationship between institutional analysts’ firm visits and firms’ risk-taking as measured by earnings quality. The results show that more frequent visits in the previous year increase managers’ risk-taking decisions in later years and that firms experience lower earnings quality. Interestingly, the concentration of shareholding and management power, traditionally believed to be negative corporate governance instruments, alleviate such risk-taking if a firm is a state-owned enterprise (SOE). For non-SOEs, the more concentrated the shareholding and management power the further the risks increase. These results are attributed to the political connection of the manager, which would make managers more risk averse when under market focus and minimize risks that would damage their reputation and political career.