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Analyst herding and investor protection: a cross-country study

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  • A. G. Kerl
  • T. Pauls

Abstract

Using a multi-national data set, we investigate the herding behaviour of financial analysts. Our results across a range of different countries suggest that analysts consistently deviate from their true forecasts and issue earnings forecasts that are biased by anti-herding. Furthermore, the level of bias (i.e. anti-herding) seems to be systematically higher for forecasts on companies from European countries compared to the US or Japan. We argue that such differences might stem from diverse levels of investor protection and corporate governance as analysts deviate less from true forecasts when the overall information environment is more transparent and company disclosures are of higher quality. Thereby, we proxy investor protection based on the company-level share of institutional ownership as well as on country-level investor protection measures. Our results show that increasing levels of investor protection and corporate governance mitigate the anti-herding behaviour. Especially, when companies that are located in high investor protection countries are held by an increasing number of institutional investors, analysts are most reluctant to issue biased forecasts.

Suggested Citation

  • A. G. Kerl & T. Pauls, 2014. "Analyst herding and investor protection: a cross-country study," Applied Financial Economics, Taylor & Francis Journals, vol. 24(8), pages 533-542, April.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:8:p:533-542
    DOI: 10.1080/09603107.2014.889800
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    Cited by:

    1. Persakis, Antonios & Iatridis, George Emmanuel, 2023. "How economic uncertainty influences the performance of investor perceptions and behavior," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    2. Barniv, Ran Ron & Chen, Min & Li, We, 2020. "The market reaction to analyst stock recommendation and earnings forecast consistency: International evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 39(C).

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