Abstract - Analyst Monitoring and Financial Development

The effectiveness of financial analysts as monitors of firms increases with financial development (FD). Using a sample of 65,799 firm-year observations in 21 countries from 1994 to 2002, we find that in high-FD countries, increased within-firm analyst coverage results in less earnings management. Such is not the case in low-FD countries. Our results are economically significant and robust to reverse causality checks. Our findings illustrate one mechanism through which financial development mitigates the cost of monitoring firms.

François Degeorge (speaker), Yuan Ding, Thomas Jeanjean, Hervé Stolowy
Swiss Finance Institute, University of Lugano, European Corporate Governance Institute (ECGI)
13.May 2008

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