Analyst cliques coverage and the speed of leverage adjustment: Evidence from China

Abstract

This study examines how analyst cliques influence firm leverage adjustment by investigating the potential echo chamber effect within complex analyst networks. Using a multilayer network framework based on information exchanges—such as teammate cooperation, cross-team communication, and stock co-coverage—we apply the Louvain algorithm to identify analyst cliques, where analysts are likely to have similar perspectives. Our findings indicate that firms covered by a higher number of analyst cliques experience slower leverage adjustment. This result remains consistent after addressing potential endogeneity concerns. The delay in leverage adjustment is attributed to the echo chamber effect within cliques, where analysts share homogeneous views that significantly diverge from those of other cliques, creating a chaotic information environment. Furthermore, from the perspective of moderating effect, we find that the negative effects of analyst cliques on leverage adjustment become more pronounced in firms with weaker governance structures and higher financing constraints. This research offers new insights into the relationship between the information environment and leverage adjustment within the dynamic trade-off model, providing valuable implications for regulators and investors in understanding the role of analyst networks in emerging financial markets.