Corporate governance and analyst behavior: Evidence from an emerging market

Ji-chai Lin, Vivian W. Tai

Research output: Journal article publicationJournal articleAcademic researchpeer-review

7 Citations (Scopus)


This study examines how analysts would recommend poorly governed firms to their clients in an emerging market where information asymmetry tends to be high and shareholder rights are not well protected by legal systems. Given that analysts have incentives to access managers and to help their brokerage houses win investment banking deals, we hypothesize that poor corporate governance reveals a firm's preference for upward-bias recommendations, while good corporate governance reveals its preference for more accurate information, and that analysts are inclined to give what the firm prefers. We examine 55 652 recommendations on firms listed on the Taiwan Stock Exchange and find evidence consistent with our hypothesis. Our study implies that analysts' buy recommendations on firms with poorer corporate governance are less reliable. Furthermore, improving corporate governance not only can reduce agency problems within firms, but can also enhance information quality produced by analysts and reduce information risk faced by investors.
Original languageEnglish
Pages (from-to)228-261
Number of pages34
JournalAsia-Pacific Journal of Financial Studies
Issue number2
Publication statusPublished - 1 Jan 2013
Externally publishedYes


  • Analyst bias
  • Analyst recommendations
  • Corporate governance

ASJC Scopus subject areas

  • Finance


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