Analyst coverage and corporate misconduct

Jiefei Yang, Ruohan Wang and Yi Xue

Australian Economic Papers, 2021, vol. 60, issue 2, 261-288

Abstract: This paper examines the causal effects of the coverage by financial analysts of the incidence of corporate misconduct in China. Using a unique dataset consisting of Chinese listed companies that committed misconduct in information disclosure and were consequently fined by the regulatory bodies, we show that firms covered by a larger number of financial analysts are less likely to engage in corporate misconduct. This could be explained by the information production role of analyst, which is especially important in emerging markets. We show that the presence of more covering analysts helps provide quality information and reduce information asymmetry regarding the firms. Because of information production by analysts, a firm could employ more intensive policies: increasing executive pay–performance sensitivity and executive turnover‐to‐performance sensitivity, which promote managerial incentives in improving corporate governance, thus leading to less corporate misconduct.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecp:v:60:y:2021:i:2:p:261-288

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