Does Corporate Governance Transparency Affect the Accuracy of Analyst Forecasts?

18 Pages Posted: 17 Nov 2006

See all articles by Gauri Bhat

Gauri Bhat

Southern Methodist University (SMU) - Accounting Department

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Tony Kang

University of Nebraska - Lincoln

Abstract

Using country-level proxies for corporate governance transparency, this paper investigates how differences in transparency across 21 countries affect the average forecast accuracy of analysts for the country's firms. The association between financial transparency and analyst forecast accuracy has been well documented in previous published literature; however, the association between governance transparency and analyst forecast accuracy remains unexplored. Using the two distinct country-level factors isolated by Bushman et al. (2004), governance transparency and financial transparency, we investigate whether corporate governance information impacts on the accuracy of earnings forecasts over and above financial information. We document that governance transparency is positively associated with analyst forecast accuracy after controlling for financial transparency and other variables. Furthermore, our results suggest that governance-related disclosure plays a bigger role in improving the information environment when financial disclosures are less transparent. Our empirical evidence also suggests that the significance of governance transparency on analyst forecast accuracy is higher when legal enforcement is weak.

Suggested Citation

Bhat, Gauri and Hope, Ole-Kristian and Kang, Tony, Does Corporate Governance Transparency Affect the Accuracy of Analyst Forecasts?. Accounting and Finance, Vol. 46, No. 5, pp. 715-732, December 2006. Available at SSRN: https://ssrn.com/abstract=945481 or http://dx.doi.org/10.1111/j.1467-629X.2006.00191.x

Gauri Bhat (Contact Author)

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-7682964 (Phone)

Ole-Kristian Hope

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Tony Kang

University of Nebraska - Lincoln ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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