Title: Does analyst following improve informativeness of earnings? Evidence from the MENA region

Authors: Omar Farooq

Addresses: Department of Management, American University in Cairo, AUC Avenue, P.O. Box 74, Cairo 11835, Egypt

Abstract: Given ineffective disclosure and governance mechanisms, are there any mechanisms that can help improve informativeness of disclosed information in the Middle East and North Africa (MENA) region? This paper aims to answer the above question by documenting the effect of analyst following on the informativeness of reported earnings. Our results show that the informativeness of reported earnings, measured by earnings-return relation, is a significantly positively function of analyst following. We argue that analysts reduce information asymmetries by continually gathering, interpreting and disseminating firm-specific information. As a result, it becomes hard for insiders to evade effective disclosure of firm value. It, therefore, leads firms to disclose the information more truthfully, thereby improving credibility of reported earnings. We also show that our results hold across sub-samples of well-performing and badly performing firms. Interestingly, our results do not hold for firm headquartered in the Middle East.

Keywords: corporate governance; analyst following; earnings informativeness; emerging markets; reported earnings; firm value; financial information; information disclosure; Middle East and North Africa; MENA.

DOI: 10.1504/IJBGE.2013.054419

International Journal of Business Governance and Ethics, 2013 Vol.8 No.2, pp.181 - 194

Published online: 02 Oct 2013 *

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