Monitoring and corporate disclosure: Evidence from a natural experiment

Rustom M. Irani and David Oesch

Journal of Financial Economics, 2013, vol. 109, issue 2, 398-418

Abstract: Using an experimental design that exploits exogenous reductions in coverage resulting from brokerage house mergers, we find that a reduction in coverage causes a deterioration in financial reporting quality. The effect of coverage on disclosure is more pronounced for firms with weak shareholder rights, consistent with a substitution effect between analyst monitoring and other corporate governance mechanisms. The effects we uncover using our experimental design are an order of magnitude larger than estimates from ordinary least squares regressions that do not account for the endogeneity of coverage. Overall, our results suggest that security analysts monitor managers and entrenched managers adopt less informative disclosure policies in the absence of such scrutiny.

Keywords: Analyst coverage; Corporate governance; Reporting decisions (search for similar items in EconPapers)
JEL-codes: D82 G24 G30 G34 M40 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (94)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X13000640
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:109:y:2013:i:2:p:398-418

DOI: 10.1016/j.jfineco.2013.02.021

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().