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Article
Publication date: 13 May 2014

Marie Josée Ledoux, Denis Cormier and Sylvain Houle

The purpose of this paper is to study the economic benefits of a pro-active disclosure strategy in a dynamic environment. More specifically, the paper explores the…

Abstract

Purpose

The purpose of this paper is to study the economic benefits of a pro-active disclosure strategy in a dynamic environment. More specifically, the paper explores the relationships between customer value disclosure, analyst following, and earnings forecasts, taking into account environmental dynamism as captured by R&D intensity, sales variability, and the reverse of industry concentration.

Design/methodology/approach

The paper considers the possibility that a firm's information dynamics may simultaneously affect disclosure strategy, analyst following, and analyst forecasts. Regression models are used in the testing of the hypotheses.

Findings

First, results show that customer value disclosure is positively associated with analyst following and consensus in analyst earning forecasts. Second, environmental dynamism enhances the association between customer value disclosure and analyst following as well as consensus among analysts. Those results suggest that customer metrics attract analysts and improve their ability to forecast earnings. Moreover, customer value disclosure appears particularly relevant for forecasting earnings of firms involved in dynamic environments.

Practical implications

Customer value disclosure would allow financial analysts to better assess future earnings in a context of uncertainty. Moreover, analysts may be reluctant to follow a firm facing high environmental dynamism without a clear corporate disclosure commitment. In such a context, managers may consider disclosing strategic information in an attempt to attract financial analysts.

Originality/value

The findings reveal that the relations between customer value disclosure, analyst following, and analyst forecasts are not straightforward but are affected by a firm's environmental uncertainty.

Details

Management Decision, vol. 52 no. 3
Type: Research Article
ISSN: 0025-1747

Keywords

Book part
Publication date: 1 November 2018

Ahmed Bouteska

The aim of this paper is to analyze the impact of corporate governance (focused on some key mechanisms as board size, board independence, managerial ownership…

Abstract

The aim of this paper is to analyze the impact of corporate governance (focused on some key mechanisms as board size, board independence, managerial ownership, institutional ownership, and chief executive officer duality) on financial analysts’ behavior in US. Results from panel data analysis for 294 US listed firms observed from 2007 to 2014 show that several attributes of the board of directors and audit committee have no effects on the number of analysts who are following the firm and the properties of analysts’ earnings forecasts. Findings also suggest that firms with independent and large boards and blockholders ownership benefit of more analyst following. In addition, it is proven that analysts’ earnings forecasts are optimistic and more accurate for companies where blockholder ownership, either by managers or external entities have larger quoted spreads but of lower quality for the ones which have greater independent board members and institutional investor’s holding.

Details

International Corporate Governance and Regulation
Type: Book
ISBN: 978-1-78756-536-4

Keywords

Article
Publication date: 29 July 2014

Sulaiman Mouselli and Khaled Hussainey

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…

3132

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.

Details

Corporate Governance, vol. 14 no. 4
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 22 July 2010

Minna Yu

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.

1266

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.

Details

Accounting Research Journal, vol. 23 no. 1
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 7 January 2014

Omar Farooq and Christian Nielsen

The purpose of this paper is to document the relationship between intellectual capital disclosure and analyst following for biotechnology firms listed on the Copenhagen…

1387

Abstract

Purpose

The purpose of this paper is to document the relationship between intellectual capital disclosure and analyst following for biotechnology firms listed on the Copenhagen Stock Exchange between 2001 and 2010.

Design/methodology/approach

Intellectual capital disclosure was computed from financial statements applying the disclosure index of Bukh et al. (2005), while analyst following data were retrieved from the Institutional Brokers’ Estimate System (I/B/E/S).

Findings

The results show that analysts are more likely to follow firms with high intellectual capital disclosure. This finding suggests that analysts wish to follow those firms for which they have more information. The results also show that the most important intellectual capital disclosures for analysts are those related to employees and strategic statements. This paper therefore expands on previous results by raising awareness of which information companies should disclose to the capital market in order to improve analyst following, in turn helping to improve the general disclosure environment.

Research limitations/implications

More relevant methods, such as surveys or interviews with management, could be used to improve the information content of intellectual capital disclosure. Analysts probably deduce the intellectual capital of a firm from interaction with management rather than financial statements.

Practical implications

Firms in and beyond the biotechnology sector can improve their information environment by disclosing more information on intellectual capital in relation to employees and strategic statements in their financial statements.

Originality/value

The findings shed light on the importance of understanding intellectual capital in the biotechnology sector for analysts and investors who wish to value such firms.

Details

Journal of Intellectual Capital, vol. 15 no. 1
Type: Research Article
ISSN: 1469-1930

Keywords

Article
Publication date: 1 January 1999

Li Li Eng and Hong Kiat Teo

This study examines the impact of annual report disclosures on analysis' forecasts for a sample of firms listed on the Stock Exchange of Singapore (SES). We examine the…

Abstract

This study examines the impact of annual report disclosures on analysis' forecasts for a sample of firms listed on the Stock Exchange of Singapore (SES). We examine the relation between the level of corporate disclosure and accuracy of analysts' earnings forecasts, dispersion in analysts' earnings forecasts, and the size of analyst following. The results reveal that the level of annual report disclosures is positively related to the accuracy of earnings forecasts by analysts, provided there is no big earnings surprise, and is also positively related to analyst following. We also find that the level of corporate disclosure is negatively related to dispersion in analysts' earnings forecasts provided there is no big earnings surprise. Tints, this study shows that more corporate disclosures by Singapore firms lead to more accuracy and less dispersion in the earnings forecasts among analysts. Furthermore, greater corporate disclosure can also lead to greater analyst interest in the firm.

Details

Pacific Accounting Review, vol. 11 no. 1/2
Type: Research Article
ISSN: 0114-0582

Article
Publication date: 13 May 2014

Xiaobao Song and Wenjia Zheng

The purpose of this paper is to examine securities analyst independence in China's capital market and the effect on analyst independence of institutional investors…

Abstract

Purpose

The purpose of this paper is to examine securities analyst independence in China's capital market and the effect on analyst independence of institutional investors’ shareholding and separation between control rights and cash flow rights of ultimate controller.

Design/methodology/approach

Using data of China's listed companies from 2006 to 2012, the authors empirically tested the relationship between analyst following and volatility of stock return. And based on the test, the authors investigated the role played by institutional investors’ ownership and separation between control rights and cash flow rights of ultimate controller.

Findings

According to the empirical results, there is a significant negative correlation between analyst following and volatility of stock return. Also, shareholding of institutional investors and the separation between control rights and cash flow rights of ultimate controllers will have an impact on the relationship between analyst following and volatility of stock return. When institutional investors hold higher proportion or the separation between control rights and cash flow rights of ultimate controllers keeps at a high level, the negative correlation between analyst following and volatility of stock return will weaken.

Originality/value

First, based on the theory of market intermediation, the paper examined analyst independence by investigating and analyzing the relationship between analyst following and volatility of stock return. Second, it analyzed the factors affecting analyst independence by integrating enterprise characteristic variable and market characteristic variable on the basis of introducing two variables – shareholding of institutional investors and the separation between control rights and cash flow rights of ultimate controllers.

Details

China Finance Review International, vol. 4 no. 2
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 16 August 2021

Su-Jane Hsieh and Yuli Su

The purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow…

Abstract

Purpose

The purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and stock prices.

Design/methodology/approach

The difference in lease expense between capital/finance lease and operating lease reporting is estimated based on the approach in Hsieh and Su (2015). This difference is referred to as the earnings impact from operating lease capitalization and is only available from footnotes. The authors then include the level of financial analyst following in a cash flow model to study its impact on the cash flow predictive value of the earnings impact. Similarly, the level of financial analyst following is inserted in an earnings-return model to assess the effect of analyst coverage on the association between contemporaneous stock returns and earnings impact.

Findings

The authors find that the cash flow predictive value of the earnings impact shifts to the interaction between analyst coverage and the earnings impact, suggesting that the decision-usefulness of the earnings impact is conditioned on the level of analyst following. Nevertheless, the authors find that the earnings impact continues to have explanatory value for the contemporaneous stock returns, while the interaction between analyst coverage and the earnings impact does not. This finding suggests that the earnings impact is already fully reflected in stock prices regardless of analyst following.

Research limitations/implications

Since the estimation of the earnings impact from reporting operating leases as capital leases is based on the method developed by Imhoff et al. (1991), the results and inferences are thus constrained by the validity of the method.

Practical implications

The authors find that financial analyst activities accelerate the incorporation of the earnings impact from operating lease capitalization in cash flow predictions, but it does not promote the impounding of the earnings impact into stock prices. This finding suggests that financial analysts' influence on the dissemination of the earnings impact hinges on the type of economic activity, and failing to consider the financial analyst following in studying the cash flow predictive value of the earnings impact would obscure the findings.

Originality/value

The authors extend the findings of prior research that financial analysts' activities promote the incorporation of firm-specific information into stock prices by investigating the impact of financial analysts on the dissemination of disclosed operating lease information.

Details

Journal of Applied Accounting Research, vol. 23 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 2 March 2015

Tzu-Ling Huang, Tawei Wang and Jia-Lang Seng

– This study aims to examine the relation between voluntary accounting changes (VACs) and analyst following.

Abstract

Purpose

This study aims to examine the relation between voluntary accounting changes (VACs) and analyst following.

Design/methodology/approach

A sample of firms was collected with VACs in the period from 1994 to 2008 and their major competitors, as well as industry benchmarking firms without accounting changes. The authors then investigated how VACs affect analystsfollowing decisions given accounting choice heterogeneity.

Findings

The findings demonstrate that VAC is negatively associated with analystsfollowing decisions. Such association becomes stronger after taking into account accounting choice heterogeneity before and after VACs.

Originality/value

This study contributes to the literature in the economic consequences of VACs and suggests that analysts presumably are able to comprehend the differences in accounting choices. However, the additional level of effort and the concern of manipulation may affect analysts’ behavior. This study documents whether VAC results in different accounting choices from the firm’s major competitors or industry benchmarking firms.

Details

International Journal of Accounting & Information Management, vol. 23 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 15 February 2022

Benjamin Jansen, Md Miran Hossain and Jon Taylor

The purpose of the study is to examine whether analyst coverage responds to changes in investor information demand for a firm and to test whether certain investor or firm…

Abstract

Purpose

The purpose of the study is to examine whether analyst coverage responds to changes in investor information demand for a firm and to test whether certain investor or firm characteristics moderate this association.

Design/methodology/approach

The authors model analyst activeness (AA) as a function of institutional investors' information demand, proxied by news readership on Bloomberg terminals and retail investors' information demand, proxied by the Google Search Volume Index (GSVI). Additionally, the authors take several steps to mitigate concerns about reverse causality that may confound the findings.

Findings

Results suggest that analysts respond to information demand shocks, but partially revert their coverage after the demand shock subsides. Furthermore, the results suggest that analysts cater their coverage more towards institutional investors than to retail investors. Evidence also suggests that analysts are more responsive to investors interested in firms with tech stock characteristics. Finally, the authors find evidence that specialist analysts respond more to institutional investors while generalist analysts respond more to retail investors.

Originality/value

The authors are the first to empirically examine the extent to which analysts cater to investor information demand. This is a vital topic to study because analysts are one of the primary sources of information for market participants. Understanding an analyst's motivation for providing information will help to facilitate market efficiency.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

Keywords

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