Analyst Coverage and Corporate Governance of French IPOs

Abstract

Analyst coverage has been associated with good corporate governance characteristics, especially in countries with weak investor protection. This hypothesis is tested for a sample of French IPOs covering the period 2004-2015. In theory, analysts can provide useful forecasts and recommendations for newly listed companies with a potential for asymmetric information. However, weak corporate governance practices may lead to their reluctance to provide coverage. Logistic regression results clearly indicate that financial analysts are more likely to follow IPOs with large institutional owners. However, this positive association disappears when French institutional shareholdings are combined with two-tier board structures and high debt levels, suggesting that analysts acknowledge the increased potential for inside monitoring and private information channels in these firms. In contrast, the impact of debt becomes positive when combined with foreign institutional ownership, indicating that analysts welcome foreign investors as promoters of good corporate governance practices.