Do corporate reforms increase performance of analysts' recommendations? Evidence from an emerging market

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 the corporate reforms. This declining trend continued even after the introduction of corporate governance code in 2002. Earlier evidence suggests that market intermediaries such as stock brokers were involved in pumping and dumping of stocks in Pakistan. One may attribute this decline in analysts' performance with the stock price manipulations by these brokers who bent the laws of supply and demand in their favour by injecting or withdrawing liquidity from the market. These actions may have diminished the informational content of the analysts' recommendations leading to the lower value of recommendations. We propose that the governance of the market intermediaries should be an issue of profound interest during the corporate reform process in the emerging markets.