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Does analyst following improve informativeness of earnings? Evidence from the MENA region

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  • Omar Farooq

Abstract

Given ineffective disclosure and governance mechanisms, are there any mechanisms that can help improve informativeness of disclosed information in the Middle East and North Africa (MENA) region? This paper aims to answer the above question by documenting the effect of analyst following on the informativeness of reported earnings. Our results show that the informativeness of reported earnings, measured by earnings-return relation, is a significantly positively function of analyst following. We argue that analysts reduce information asymmetries by continually gathering, interpreting and disseminating firm-specific information. As a result, it becomes hard for insiders to evade effective disclosure of firm value. It, therefore, leads firms to disclose the information more truthfully, thereby improving credibility of reported earnings. We also show that our results hold across sub-samples of well-performing and badly performing firms. Interestingly, our results do not hold for firm headquartered in the Middle East.

Suggested Citation

  • Omar Farooq, 2013. "Does analyst following improve informativeness of earnings? Evidence from the MENA region," International Journal of Business Governance and Ethics, Inderscience Enterprises Ltd, vol. 8(2), pages 181-194.
    • Handle: RePEc:ids:ijbget:v:8:y:2013:i:2:p:181-194
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    Cited by:

    1. Mona A. ElBannan & Omar Farooq, 2019. "When are earnings informative?," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 12(3), pages 388-406, June.
    2. Moumen, Néjia & Ben Othman, Hakim & Hussainey, Khaled, 2015. "The value relevance of risk disclosure in annual reports: Evidence from MENA emerging markets," Research in International Business and Finance, Elsevier, vol. 34(C), pages 177-204.

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