Does analyst following improve firm performance? Evidence from the MENA region

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Management Department

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Research Article

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Corporate Ownership and Control

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Given ineffective disclosure and governance mechanisms, are there any mechanisms that can help improve performance of firms in the MENA region? This paper aims to answer the above question by documenting the effect of analyst following on firm performance during the period between 2005 and 2009. Our results show that the extent of analyst following does positively affect firm performance. However, this beneficial impact exists only at high level of analyst following. At lower levels of analysts following, our results show negative relationship between the two. We argue that high levels of analyst following, it becomes hard for insiders to evade effective disclosure of firm value. It, therefore, leads to lower agency problems and, eventually, to better performance. We also show that high levels of analyst following, partly, improve the informativeness of reported earnings. However, it does not improve the informativeness to an extent that the information contained in reported earnings is positively reflected in stock prices.

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