Institutional investors, political connections and stock recommendations from sell-side analysts: the case of Malaysia

Ameen Qasem, Wan Nordin Wan-Hussin, Belal Ali Abdulraheem Ghaleb and Hasan Mohamad Bamahros

Journal of Accounting in Emerging Economies, 2022, vol. 13, issue 2, 450-483

Abstract: Purpose - The purpose of this study is to investigate the interplay between institutional investors' ownership (IIO), politically connected firms (POC) and sell-side analysts' stock recommendations (ASR). Design/methodology/approach - This study employs ordinary least square (OLS) regression to test the hypotheses. The sample comprises 280 Malaysian public listed companies (PLC) and encompasses the 2008–2013 time frame (a total of 735 observations). Findings - The results show a significant and positive link between IIO and ASR. In addition, a negative association is found between POC and ASR. Moreover, the POC weakens the positive relationship between the IIO and ASR. Research limitations/implications - One important implication of this study is that political involvement in corporate decisions is a prominent characteristic of the Malaysian market, which can significantly affect the information environment and analysts' reactions. Practical implications - The findings of this study provide useful empirical guidance to the regulators in evaluating the efficacy of recent regulatory initiatives. Investors may also gain useful insights from this study, specifically in recognising the crucial monitoring role played by institutional investors and how politically patronised firms are viewed unfavourably by equity analysts. Originality/value - This study is one of the first to examine the joint influence of IIO and POC, on ASR.

Keywords: Analysts' recommendations; Institutional investors; Political connections; Corporate political engagement; Malaysia (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaeepp:jaee-05-2021-0177

DOI: 10.1108/JAEE-05-2021-0177

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