Impacts of analyst coverage initiation on market quality

We examine whether the initiation of financial analysts' coverage leads to improved stock-price informativeness and increased market liquidity using the difference-in-differences methodology. The average value of daily total trading volume is significantly higher after than before initiation. The increase in trading volume is higher in the KOSDAQ market than in the KOSPI market, irrespective of investor type. Nonetheless, this increased rate is observed to decline more rapidly over time in the KOSDAQ market. When an analyst initiates coverage on a stock, both price informativeness and market liquidity improve, with different markets driving each effect. The enhancement of price informativeness is significant in the KOSPI, whereas the increase in market liquidity is primarily driven by firms listed on the KOSDAQ.