Corporate Governance and Analysts’ Earnings Forecast Characteristics: Evidence from Asian Stock Markets

• In Event: Financial Accounting and Reporting 4

Abstract

This paper examines the influence of corporate governance on the capital market participants’ abilities to forecast future performance, as measured by the properties of analysts’ earnings forecasts. We find that higher corporate governance is associated with lower forecast errors, lower forecast dispersion and lower forecast revision volatility. These findings are obtained with a sample of companies across eleven Asian economies over 2004-2012. The results 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 institutional environment. Our results speak to the benefit of having strong corporate governance in terms of reducing the information asymmetry between investors and corporate management.

Authors

• Minna Yu, Monmouth University

• Yanming Wang, Shanghai University of Finance and Economics