Premium
Does corporate governance transparency affect the accuracy of analyst forecasts?
Author(s) -
Bhat Gauri,
Hope OleKristian,
Kang Tony
Publication year - 2006
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2006.00191.x
Subject(s) - transparency (behavior) , corporate governance , accounting , business , earnings , enforcement , affect (linguistics) , finance , political science , psychology , communication , law
Using country‐level proxies for corporate governance transparency, this paper investigates how differences in transparency across 21 countries affect the average forecast accuracy of analysts for the country's firms. The association between financial transparency and analyst forecast accuracy has been well documented in previous published literature; however, the association between governance transparency and analyst forecast accuracy remains unexplored. Using the two distinct country‐level factors isolated by Bushman et al. (2004), governance transparency and financial transparency, we investigate whether corporate governance information impacts on the accuracy of earnings forecasts over and above financial information. We document that governance transparency is positively associated with analyst forecast accuracy after controlling for financial transparency and other variables. Furthermore, our results suggest that governance‐related disclosure plays a bigger role in improving the information environment when financial disclosures are less transparent. Our empirical evidence also suggests that the significance of governance transparency on analyst forecast accuracy is higher when legal enforcement is weak.