A1 Journal article (refereed), original research

Do Governance Reforms Increase Informativeness of Analysts’ Stock Recommendations? Evidence from a developing Market


LUT Authors / Editors

Publication Details
Authors: Ahmed Sheraz, Farooq Omar
Publication year: 2013
Language: English
Related Journal or Series Information: International Journal of Business Governance and Ethics
Volume number: 8
Issue number: 1
JUFO-Level of this publication: 1
Open Access: Not an Open Access publication

Abstract
What happens to analysts' performance when security market reforms bring corporate transparency in emerging markets but the governance of market intermediaries (mainly stock brokers) is weak? Using analysts' recommendation and subsequent stock market returns from Pakistan, we find that analysts' performance deteriorated significantly after the corporate reforms. This declining trend continued even after the introduction of corporate governance code in 2002. Earlier evidence suggests that market intermediaries such as stock brokers were involved in pumping and dumping of stocks in Pakistan. One may attribute this decline in analysts' performance with the stock price manipulations by these brokers who bent the laws of supply and demand in their favour by injecting or withdrawing liquidity from the market. These actions may have diminished the informational content of the analysts' recommendations leading to the lower value of recommendations. We propose that the governance of the market intermediaries should be an issue of profound interest during the corporate reform process in the emerging markets.

Last updated on 2017-22-03 at 15:59