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Corporate governance, analyst following and firm value

Sulaiman Mouselli (Lecturer, based at the Department of Economics, Damascus University, Damascus, Syrian Arab Republic)
Khaled Hussainey (Professor, based at the Department of Accounting and Finance, Plymouth University, Plymouth, UK)

Corporate Governance

ISSN: 1472-0701

Article publication date: 29 July 2014

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Abstract

Purpose

The purpose of this paper is to examine the impact of a firm’s corporate governance (CG) mechanisms on the number of financial analysts following UK firms. The potential effect of the number of analysts following firms in the UK on the association between CG mechanisms and firm value was also examined.

Design/methodology/approach

Multiple regression models were used to examine the association between CG, analyst coverage and firm value for a large sample of UK firms listed in London Stock Exchange with financial year ends between January 2003 and December 2008.

Findings

It was found that the aggregate level of CG quality is positively associated with the number of analysts following UK firms. In addition, the compensation score is the main component that affects the number of analysts following UK firms. The results suggest that financial analysts are particularly concerned with how much compensation executives and directors receive. This is consistent with Jensen and Meckling (1976) who argue that chief executive officer (CEO) compensation can be used as effective mechanisms for mitigating agency costs. Hence, higher levels of CEO compensation attract more financial analysts to follow the firm. Surprisingly, when the joint effect of both CG quality and the number of analysts following on firm value was examined, no significant effect was found for both variables on firm value.

Originality/value

This paper contributes to prior research by providing the first empirical evidence on the impact of disaggregated levels of CG on analyst following and firm value for a large sample of UK firms.

Keywords

Citation

Mouselli, S. and Hussainey, K. (2014), "Corporate governance, analyst following and firm value", Corporate Governance, Vol. 14 No. 4, pp. 453-466. https://doi.org/10.1108/CG-03-2011-0093

Publisher

:

Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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