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.
This paper uses empirical methodology to test the hypothesis with a sample of 753 emerging‐market companies over 2001 and 2002.
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.
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.
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.
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.
