Do ESG Controversies Affect Sell‐Side Analyst Coverage and Recommendations? The Moderating Role of Firm Visibility

This study aims to investigate the effect of environmental, social, and governance (ESG) controversies on both analyst coverage and recommendations, as well as the moderating role of firm visibility in this relationship. Using a sample of nonfinancial firms from European regions over the period 2011–2023, we conduct generalized least squares (GLS) with fixed‐effects estimations, robustness checks, and two‐stage least squares (2SLS) regression analysis to address potential endogeneity issues. The results reveal a dual response by financial intermediaries: analyst coverage is negatively associated with the ESG controversy score, while recommendations are positively related to it. Reconciling these opposing directions, we show that ESG controversies can deteriorate the information environment and amplify reputational spillover risks, prompting risk‐averse analysts to reduce coverage scope. Conversely, high uncertainty generates strong investor demand, pushing remaining analysts to intensify their monitoring role via more frequent rating adjustments. Visibility (firm size and age) shapes these dynamics. Overall, these findings highlight how financial analysts balance reputational risk against monitoring responsibilities following corporate scandals.