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Monitoring and corporate disclosure: Evidence from a natural experiment

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  • Irani, Rustom M.
  • Oesch, David
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    Abstract

    Using an experimental design that exploits exogenous reductions in coverage resulting from brokerage house mergers, we find that a reduction in coverage causes a deterioration in financial reporting quality. The effect of coverage on disclosure is more pronounced for firms with weak shareholder rights, consistent with a substitution effect between analyst monitoring and other corporate governance mechanisms. The effects we uncover using our experimental design are an order of magnitude larger than estimates from ordinary least squares regressions that do not account for the endogeneity of coverage. Overall, our results suggest that security analysts monitor managers and entrenched managers adopt less informative disclosure policies in the absence of such scrutiny.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X13000640
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 109 (2013)
    Issue (Month): 2 ()
    Pages: 398-418

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    Handle: RePEc:eee:jfinec:v:109:y:2013:i:2:p:398-418

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Analyst coverage; Corporate governance; Reporting decisions;

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