Corporate Governance Reforms and Analyst Forecasts: International Evidence

Abstract

In this study, we examine the effect of worldwide corporate governance reforms on analyst forecasts using data on firms from 41 countries that have implemented such reforms. Employing a difference-in-differences design, we find robust evidence of a significant positive effect of these reforms, which mainly promote the independence of the audit committee and auditors, on analyst forecast accuracy. We also find significant improvements in post-reform corporate governance structure and the quantity and quality of corporate disclosure, which validates the predicted economic mechanism of the impact of these reforms. Moreover, the reforms are effective in reducing analyst forecast bias and dispersion, suggesting an overall improvement in analyst forecast quality after reform implementation. Furthermore, we find a moderating effect of analyst general experience on the relationship of interest, which is consistent with the conjecture that improved corporate disclosures following reforms could be more beneficial for analysts with less experience. Overall, our findings shed new insights into how country-level corporate governance reforms worldwide shape firms’ information environment.