Analyst Coverage, Corruption and Financial Secrecy: A Multi-Country Study

Abstract

This study extends the literature on analyst coverage by examining the impact of both the experience of corruption at country-level and firm actions to prevent corruption on analyst coverage. It also extends the literature on analyst coverage by examining the effect of financial secrecy at country-level on the number of analysts following a firm, using a large multi-country sample for the year 2011. Furthermore, we examine the impact of these experimental variables on analyst coverage for advanced and emerging markets separately. The results show that high levels of corruption and financial secrecy at country-level significantly reduce analyst coverage consistent with the hypothesis that they are associated with higher levels of information acquisition costs. This result is consistent for both advanced and emerging economies, but because the financial secrecy and corruption variables at country-level are highly correlated in emerging markets, we should consider their impact on analyst coverage individually. The results also indicate that the adoption of anti-bribery and corruption policies at the firm-level may not in itself be sufficient to induce analyst coverage, indicating that it is the actual conduct rather than policies on paper that attracts analyst coverage.