TY - JOUR
T1 - Information environment, behavioral biases, and home bias in analysts’ recommendations
T2 - Pre- and post-crisis evidence from Asian emerging markets
AU - Farooq, Omar
AU - Taouss , Mohammed
PY - 2012
Y1 - 2012
N2 - Can information environment of a firm explain home bias in analysts’ recommendations? Can the extent of agency problems explain optimism difference between foreign and local analysts? This paper answers these questions by documenting the effect of information environment on home bias in analysts’ recommendations. Using a large data of analysts’ recommendations from Asian emerging markets, we show that local analysts issue more optimistic recommendations than their foreign counterparts. However, optimism difference between the two groups is greater for firms with poor information environment. Our results show that optimism difference between the two groups is more than twice as much in firms with poor information environment than in firms with better information environment. We argue that poor information environment pose greater information asymmetries to foreign analysts regarding local firms relative to local analysts. As a result, we expect them to be less optimistic in their recommendations relative to local analysts. However, for firms with better information environment, foreign analysts face less information asymmetries. As a result, they are relatively more optimistic (less pessimistic) in their recommendations, thereby causing convergence in optimism level between foreign and local analysts.
AB - Can information environment of a firm explain home bias in analysts’ recommendations? Can the extent of agency problems explain optimism difference between foreign and local analysts? This paper answers these questions by documenting the effect of information environment on home bias in analysts’ recommendations. Using a large data of analysts’ recommendations from Asian emerging markets, we show that local analysts issue more optimistic recommendations than their foreign counterparts. However, optimism difference between the two groups is greater for firms with poor information environment. Our results show that optimism difference between the two groups is more than twice as much in firms with poor information environment than in firms with better information environment. We argue that poor information environment pose greater information asymmetries to foreign analysts regarding local firms relative to local analysts. As a result, we expect them to be less optimistic in their recommendations relative to local analysts. However, for firms with better information environment, foreign analysts face less information asymmetries. As a result, they are relatively more optimistic (less pessimistic) in their recommendations, thereby causing convergence in optimism level between foreign and local analysts.
U2 - 10.1504/IJCG.2012.051853
DO - 10.1504/IJCG.2012.051853
M3 - Journal article
SN - 1754-3037
VL - 3
SP - 105
EP - 125
JO - International Journal of Corporate Governance
JF - International Journal of Corporate Governance
IS - 2/3/4
ER -