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Firm-specific corporate governance and analysts’ earnings forecast characteristics: Evidence from Asian stock markets

Minna Yu (Department of Accounting, Monmouth University, West Long Branch, New Jersey, USA)
Yanming Wang (School of Accounting, Shanghai University of Finance and Economics, Shanghai, China)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 6 August 2018

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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

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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