Do Corporate Ethics Enhance Financial Analysts’ Behavior and Performance?

Sana Ben Hassine () and Claude Francoeur
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Sana Ben Hassine: Accounting Department, UQAM School of Management, University of Quebec at Montreal, Montréal, QC H2X 3X2, Canada
Claude Francoeur: Department of Accounting, HEC Montreal, Montréal, QC H3T 2A7, Canada

JRFM, 2024, vol. 17, issue 9, 1-19

Abstract: This study investigates the relationship between corporate ethics and the information intermediation element of public companies’ information environment. Drawing on the well-established virtue, deontological, and consequential ethical theories, we predict that higher corporate ethics standards have a positive effect on financial analysts’ behavior and earnings forecasts. Using a sample of 5276 firm-year observations from 780 publicly listed US companies, multivariate regression analyses document a significant positive association between company’s level of ethical commitment and analyst coverage and forecast accuracy. Furthermore, the results show that firms with fewer incidents of ethical misconduct are associated with higher analyst consensus. These findings hold across a battery of robustness tests and indicate that a firm’s ethical commitment enhances its corporate information environment and allows financial analysts to play a more effective intermediary role in capital markets.

Keywords: business ethics; corporate ethics; ethical controversies; corporate transparency; quality of financial reporting; analyst behavior; analyst performance; forecast accuracy; analyst following; analyst consensus (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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