Does Corporate Governance Quality Affect Analyst Coverage? Evidence from the Institutional Shareholder Services (ISS)

14 Pages Posted: 26 Jun 2014

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: June 25, 2014

Abstract

We examine the impact of corporate governance quality on the extent of analyst coverage. The evidence based on nearly 3,000 firms indicates that more analysts are likely to cover firms with weaker corporate governance. In particular, as corporate governance quality falls by one standard deviation, analyst following increases by 11.40%. Our evidence is consistent with the notion that poor governance results in a wider divergence between the stock’s market price and the fundamental value. Analysts prefer to cover companies with poor governance because it allows them to generate trading commissions by offering shareholders a particularly compelling story about why a stock’s fundamental value and the current price differ.

Keywords: Corporate governance, analyst following, analyst coverage, governance mechanisms

JEL Classification: G30, G34

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Kim, Young Sang and Kim, Jang-Chul, Does Corporate Governance Quality Affect Analyst Coverage? Evidence from the Institutional Shareholder Services (ISS) (June 25, 2014). Available at SSRN: https://ssrn.com/abstract=2458841 or http://dx.doi.org/10.2139/ssrn.2458841

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-1486 (Phone)

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