Corporate governance and dispersion in analysts' recommendations: pre- and post-crisis analysis from Asian emerging markets

Abstract

This paper documents the effect of corporate governance mechanisms on the dispersion in analysts' recommendations in Asian emerging markets. Using a large dataset of analyst recommendations, we document a significantly higher dispersion in analysts' recommendations during the pre-crisis period (poor governance regime) relative to the post-crisis period (better governance regime). We argue that higher dispersion in analysts' recommendations was due to ineffective governance mechanisms prevailing during the pre-crisis period. However, as governance mechanisms improved, reduction in information asymmetries resulted in convergence of analysts' information, thereby lowering the dispersion in analysts' recommendations during the post-crisis period. Consistent with our arguments, our results show that corporate governance mechanisms can explain the bulk of difference in dispersion between the two periods. This study adds to the debate on effectiveness of corporate governance reforms in Asian emerging markets. Our results, overwhelmingly, indicate the success of governance reforms initiated after the Asian financial crisis of 1997−1998.