Firm-specific corporate governance and analysts’ earnings forecast characteristics: Evidence from Asian stock markets
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 6 August 2018
Abstract
Purpose
The purpose of this paper is to examine the impact of corporate governance on the capital market participants’ abilities to forecast future performance, as measured by the properties of analysts’ earnings forecasts in Asian stock markets.
Design/methodology/approach
This paper hypothesizes that higher corporate governance is associated with lower forecast errors, lower forecast dispersion and lower forecast revision volatility.
Findings
These predictions are supported with a sample of companies across eleven Asian economies over 2004-2012. The results of this paper suggest that corporate governance plays a significant role in the predictability of firm’s future performance and, therefore, improves the financial environment in Asian stock markets. Furthermore, the impact of corporate governance on analysts’ forecast properties is more pronounced in countries with strong investor protection.
Research/limitations/implications
The authors acknowledge the following limitations of this paper. First, the results of this paper may be subject to omitted-variable bias and endogeneity issue. The authors have used control variables in the regressions to reduce the omitted variable bias. The authors have run lead-lag regressions to address causality issue. Second, CLSA corporate governance scores are collected for largest companies in each jurisdiction. Therefore, the sample is biased towards the largest companies in those jurisdictions and may not be representative of the average firm in the Asia.
Originality/value
The results of this paper speak to the benefit of having strong corporate governance in terms of reducing the information asymmetry between investors and corporate management.
Keywords
Acknowledgements
The authors thank Credit Lyonnais Securities Asia (CLSA) for providing corporate governance ratings data. They appreciate valuable inputs from our discussant, Luminita Enache and other conference participants at American Accounting Association’s 2014 Mid-Atlantic Region Meeting as well as conference participants at 2014 Accounting Conference at Temple University. Minna Yu acknowledges the summer research support from Business Council of Leon Hess Business School. In addition, this work was supported, in part, by a Creativity and Research Grant from Monmouth University.
Citation
Yu, M. and Wang, Y. (2018), "Firm-specific corporate governance and analysts’ earnings forecast characteristics: Evidence from Asian stock markets", International Journal of Accounting & Information Management, Vol. 26 No. 3, pp. 335-361. https://doi.org/10.1108/IJAIM-03-2017-0040
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited