Where Corporate Governance and Financial Analysts Affect Valuation

34 Pages Posted: 13 Oct 2009

See all articles by Ran Barniv

Ran Barniv

Kent State University - Department of Accounting

Yan Bao

Frostburg State University

Abstract

We examine whether corporate governance and financial analysts affect accounting-based valuation models for B and H shares traded by foreign investors in China and Hong Kong, respectively. We expect that better corporate governance and more effective analyst activity mitigate potential adverse effects on accounting valuation models generated by country-specific problems in accounting, auditing, and legal systems. We find that valuation models perform better for companies with a greater analyst following, smaller forecast errors, relatively high public ownership and a strong board structure. Valuation models and accounting numbers have only limited explanatory power and valuation role for companies with weak governance and less effective analyst performance. The findings are robust across various market value, return, unexpected return, and other accounting valuation models. The results are consistent with less informed foreign investor clienteles searching for signals of more effective analyst activity and better corporate governance mechanisms.

JEL Classification: M41, G34

Suggested Citation

Barniv, Ran and Bao, Yan, Where Corporate Governance and Financial Analysts Affect Valuation. Journal of International Financial Management & Accounting, Vol. 20, No. 3, pp. 240-273, Autumn 2009, Available at SSRN: https://ssrn.com/abstract=1486854 or http://dx.doi.org/10.1111/j.1467-646X.2009.01032.x

Ran Barniv (Contact Author)

Kent State University - Department of Accounting ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1112 (Phone)
330-672-2548 (Fax)

Yan Bao

Frostburg State University ( email )

101 Braddock Road
Frostburg, MD 21532
United States
301-687-4272 (Phone)
301-687-4380 (Fax)

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