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Analyst following and corporate governance: emerging-market evidence

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  • Minna Yu
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    Abstract

    Purpose – The purpose of this paper is to examine the association of analyst following with the strength of overall firm-specific corporate governance (CG) in an emerging-market setting. Design/methodology/approach – This paper uses empirical methodology to test the hypothesis with a sample of 753 emerging-market companies over 2001 and 2002. Findings – It is found that the effectiveness of CG has a positive impact on the level of analyst following. Further analyses indicate that this positive relation is concentrated in the countries with a common law tradition. Research limitations/implications – This paper joins prior research by providing evidence on the information intermediary role of financial analysts. It also provides supporting evidence on analysts' monitoring role in common law countries of emerging markets. Practical implications – The findings of this paper have implications for the decision making of managers and investors. By improving CG at the firm level, companies can significantly improve their information environments. The findings of this paper also have important implications for standard setters and regulators in emerging economies by shedding light on the importance of requesting firms to have good CG mechanisms in place, particularly in countries with relatively strong investor protection. Originality/value – Although prior research has documented the positive effect of country-level investor protection or a single aspect of firm-level CG on analyst following, it is unknown whether the level of analyst following is associated with the quality of firm-specific CG. This paper fills in this research gap by empirically investigating this relation.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Accounting Research Journal.

    Volume (Year): 23 (2010)
    Issue (Month): 1 (July)
    Pages: 69-93

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    Handle: RePEc:eme:arjpps:v:23:y:2010:i:1:p:69-93

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Corporate governance; Emerging markets; Financial analysis;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06.
    3. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103.
    4. Mark H. Lang & Karl V. Lins & Darius P. Miller, 2004. "Concentrated Control, Analyst Following, and Valuation: Do Analysts Matter Most When Investors Are Protected Least?," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 589-623, 06.
    5. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "Investor Protection and Corporate Governance," Working Paper 19455, Harvard University OpenScholar.
    7. Mitton, Todd, 2004. "Corporate governance and dividend policy in emerging markets," Emerging Markets Review, Elsevier, vol. 5(4), pages 409-426, December.
    8. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    9. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
    10. Robert M. Bushman & Joseph D. Piotroski & Abbie J. Smith, 2004. "What Determines Corporate Transparency?," Journal of Accounting Research, Wiley Blackwell, vol. 42(2), pages 207-252, 05.
    11. Choi, Jongmoo Jay & Park, Sae Woon & Yoo, Sean Sehyun, 2007. "The Value of Outside Directors: Evidence from Corporate Governance Reform in Korea," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(04), pages 941-962, December.
    12. Eng, L. L. & Mak, Y. T., 2003. "Corporate governance and voluntary disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 22(4), pages 325-345.
    13. Bai, Chong-En & Liu, Qiao & Lu, Joe & Song, Frank M. & Zhang, Junxi, 2004. "Corporate governance and market valuation in China," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 599-616, December.
    14. Fan, Joseph P. H. & Wong, T. J., 2002. "Corporate ownership structure and the informativeness of accounting earnings in East Asia," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 401-425, August.
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