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Article
Do Corporate Reforms Increase Performance of Analysts’ Recommendations? Evidence from an Emerging Market
International Journal of Business Governance and Ethics (2013)
  • Omar Farooq
  • Sheraz Ahmed
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 thecorporate reforms. This declining trend continued even after the introduction of corporate governance code of 2002. Consistent with the prior evidence regarding price manipulation activities of market intermediaries, we argue that this decline in analysts’ performance was partly due to stock price manipulation of market intermediaries who bent the laws of supply and demand in their favor by injecting or withdrawing liquidity from the market irrespective of fundamentals. They may have used analysts to facilitate their unscrupulous behavior by inducing them to issue such recommendations that served their interests. We propose that market intermediaries, therefore, should be subject to proper governance mechanisms in newly emerging markets to realize the full benefits of corporate reforms.
Keywords
  • Corporate reforms; Corporate Governance; Regulatory Authority; Analysts’ Recommendations; Stock Brokers
Publication Date
2013
Citation Information
Omar Farooq and Sheraz Ahmed. "Do Corporate Reforms Increase Performance of Analysts’ Recommendations? Evidence from an Emerging Market" International Journal of Business Governance and Ethics Vol. 8 Iss. 1 (2013)
Available at: http://works.bepress.com/omar_farooq/26/