Ethics Events and Conditions of Possibility: How Sell-Side Financial Analysts Became Involved in Corporate Governance

2020 ◽  
Author(s):  
Simon Tan
Keyword(s):  
Corporate Governance ◽  
Financial Analysts ◽  
Conditions Of Possibility

Ethics Events and Conditions of Possibility: How Sell-Side Financial Analysts Became Involved in Corporate Governance

2020 ◽  
Vol 31 (1) ◽  
pp. 106-137
Author(s):  
Zhiyuan (Simon) Tan
Keyword(s):  
Corporate Governance ◽  
Financial Markets ◽  
Financial Analysts ◽  
The United States ◽  
Discursive Construction ◽  
Moral Norms ◽  
Ethical Problems ◽  
The Past ◽  
Finance Ethics ◽  
Conditions Of Possibility

ABSTRACTMobilizing Foucault’s genealogy, this article investigates how an “ethics event”—the involvement by some sell-side financial analysts in the United States and United Kingdom across the past two decades in corporate governance—emerged. It is found that the complex relations formed between specific historical precedents, normative discourses, and fields of power rendered certain issues in financial markets morally problematic and constructed analysts’ corporate governance work as a potential solution. Contributing to research in finance ethics, this article develops a novel perspective to conceptualize the rise of ethically relevant practices in financial markets, focusing on how ethical problems and their solutions are outcomes of discursive construction and power relations. This article also revises our understanding of the boundary between technical norms and moral norms in financial markets. When ethical crises occur, it is argued, transforming technical practices and revising the technical norms adopted by financial professionals has the potential to tackle ethical concerns.

scholarly journals Corporate Governance Principles and Sustainability

2017 ◽  
Vol 1 (2) ◽  
pp. 13-19 ◽  
Author(s):  
Hugh Grove ◽  
Maclyn Clouse
Keyword(s):  
Corporate Governance ◽  
21St Century ◽  
Boards Of Directors ◽  
Financial Analysts ◽  
Accounting Standards ◽  
Lessons Learned ◽  
International Accounting Standards ◽  
Short Sellers ◽  
The U.S

With 21st century U.S. frauds destroying well over one trillion of market capitalization and now with Valeant’s 2016 market cap destruction of $86 billion, the question must again be asked: where were the gatekeepers (boards of directors, regulators, sell-side financial analysts, and auditors) to protect investors? Many of these frauds were caught only by short sellers, such as Jim Chanos (shorting Enron in 2000 and Valeant in 2014), Andrew Left (shorting Valeant in 2015), and buy-side financial analysts. Sir David Tweedy, the former chair of the International Accounting Standards Board, has commented: “The scandals that we have seen in recent years are often attributed to accounting although, in fact, I think the U.S. cases are corporate governance scandals involving fraud” (Tweedy, 2007). This paper is a case study using the Valeant $86 billion market cap destruction in 2016 to emphasize the timeless nature of such corporate governance scandals. This scandal was even larger than the infamous $78 billion market cap destruction scandal of Enron which occurred 15 years earlier in 2001. These scandals appear here to stay as the new normal so these gatekeepers should be doing everything they can to analyze the ongoing fraud problems. Accordingly, as a case study, this paper develops lessons learned from this $86 billion Valeant scandal to emphasize the importance of sustainable corporate governance principles as a pathway to avoid malpractices in the future.

The impact of social responsibility disclosure and governance on financial analysts’ information environment

2014 ◽  
Vol 14 (4) ◽  
pp. 467-484 ◽  
Author(s):  
Denis Cormier ◽  
Michel Magnan
Keyword(s):  
Corporate Governance ◽  
Social Responsibility ◽  
Voluntary Disclosure ◽  
Financial Analysts ◽  
Information Environment ◽  
Analyst Forecast ◽  
Content Type ◽  
Forecast Precision ◽  
Csr Disclosure ◽  
The Impact

Purpose – The purpose of this paper is to explore the relationships between corporate social responsibility (CSR) disclosure, corporate governance and financial analysts’ information environment, as proxied by their ability to forecast a firm’s earnings. Hence, we extend prior voluntary disclosure research. Design/methodology/approach – Our paper considers that the determination of CSR disclosure, corporate governance and financial analyst forecasting work are closely intertwined. Therefore, we rely on simultaneous equations to explore these relations. Findings – Findings show that there is a direct relation between both CSR disclosure and corporate governance and financial analysts’ information environment: more disclosure and better governance translate into a tighter consensus in earnings forecasts as well as less dispersion. However, corporate governance substitutes for CSR disclosure in improving analyst forecast precision, thus supporting a comprehensive view of corporate governance that encompasses disclosure. Finally, results also suggest that CSR disclosure, through its effect on governance and analyst following, has an indirect influence on analyst forecast precision. Overall, it appears that both CSR disclosure and good corporate governance attract analysts and improve their ability to forecast earnings. Originality/value – To the best of our knowledge, our study is the first to investigate the joint effect of corporate governance and CSR disclosure on analyst forecast precision.

scholarly journals Corporate governance, analyst following and firm value

2014 ◽  
Vol 14 (4) ◽  
pp. 453-466 ◽  
Author(s):  
Sulaiman Mouselli ◽  
Khaled Hussainey
Keyword(s):  
Corporate Governance ◽  
Firm Value ◽  
Ceo Compensation ◽  
Stock Exchange ◽  
Financial Analysts ◽  
Chief Executive ◽  
Analyst Following ◽  
Content Type ◽  
Large Sample ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of a firm’s corporate governance (CG) mechanisms on the number of financial analysts following UK firms. The potential effect of the number of analysts following firms in the UK on the association between CG mechanisms and firm value was also examined. Design/methodology/approach – Multiple regression models were used to examine the association between CG, analyst coverage and firm value for a large sample of UK firms listed in London Stock Exchange with financial year ends between January 2003 and December 2008. Findings – It was found that the aggregate level of CG quality is positively associated with the number of analysts following UK firms. In addition, the compensation score is the main component that affects the number of analysts following UK firms. The results suggest that financial analysts are particularly concerned with how much compensation executives and directors receive. This is consistent with Jensen and Meckling (1976) who argue that chief executive officer (CEO) compensation can be used as effective mechanisms for mitigating agency costs. Hence, higher levels of CEO compensation attract more financial analysts to follow the firm. Surprisingly, when the joint effect of both CG quality and the number of analysts following on firm value was examined, no significant effect was found for both variables on firm value. Originality/value – This paper contributes to prior research by providing the first empirical evidence on the impact of disaggregated levels of CG on analyst following and firm value for a large sample of UK firms.

scholarly journals Due Diligence Procedures and Principles for Financial Analysis and Corporate Governance

2018 ◽  
Vol 12 (1) ◽  
pp. 107-114
Author(s):  
Hugh Grove ◽  
Mac Clouse
Keyword(s):  
Corporate Governance ◽  
Boards Of Directors ◽  
Financial Analysis ◽  
Financial Analysts ◽  
Forensic Analysis ◽  
Common Stock ◽  
Corporate Executives ◽  
Governance Practices ◽  
Global Companies ◽  
A Company

An initial set of seven procedures is developed for assessing a company’s common stock. A second set of ten procedures is developed for performing stealth or external financial (forensic) analysis on a company’s common stock. Also, a set of eight corporate governance principles, developed in secret over one year by 13 prominent CEOs of U.S. based, global companies, are elaborated for analyzing a company’s corporate governance practices in this paper. The purpose of this paper is to portray how these procedures and principles can be used by financial analysts and Boards of Directors in helping to assess the viability of the companies they are analyzing or serving and to develop key questions to ask of corporate executives. Thus, the first set of procedures elaborates seven reasons to consider in assessing a company’s stock. The second set of procedures develops ten steps of stealth forensics to investigate the possibility of financial shenanigans or fraud by a company. The last set of eight principles assesses the strength of corporate governance in a company. The importance of these principles is demonstrated by matching them with the practices of just 18 mainly global companies that managed to destroy $1.5 trillion of market capitalization. All these twenty-five procedures and principles will help strengthen financial analysis and corporate governance, especially for the role of financial analysts and Boards of Directors in assessing the value of companies’ common stock for investors.

scholarly journals Corporate Governance and Financial Reporting Quality: Preliminary Evidence from Saudi Arabia

2020 ◽  
Vol 4 (1) ◽  
pp. 109-116
Author(s):  
Sarah Al-Khonain ◽  
Khalid Al-Adeem
Keyword(s):  
Corporate Governance ◽  
Saudi Arabia ◽  
Financial Reporting ◽  
Boards Of Directors ◽  
Financial Analysts ◽  
Financial Statements ◽  
Governance Mechanisms ◽  
Corporate Governance Mechanisms ◽  
The Impact

The investment climate in the country depends largely on the level of confidence of potential investors, which actualizes the need to provide transparent and quality financial reporting to economic entities. Powerful corporations that have established an effective corporate governance mechanism are able to provide high competitive advantage over the long term, contributing to their financial and economic stability. The purpose of the article is to determine the impact of corporate governance mechanisms on the quality of a company’s financial statements. The corporate governance rules in force in Saudi Arabia were developed in 2006, then revised twice in 2009 and 2015, and only finally approved in 2017. The survey was based on the results of an electronic survey of 56 Saudi financial analysts selected from their LinkedIn profiles (financial analysts were selected by respondents because they play a significant role in the capital markets and are users of financial statements). The author points out that the objectivity of the survey results can be enhanced by expanding the sample of survey participants. The questionnaire contained 11 questions about corporate governance and its contribution to improving the quality of the financial statements of the respective companies. The results of the survey have empirically confirmed that corporate governance is a factor contributing to improving the quality of financial reporting and, consequently, increasing foreign investment inflows, so compliance with the new corporate governance rules is extremely important for Saudi Arabia corporations. Improvements in corporate governance mechanisms are perceived by members of boards of directors, audit committees, and internal audit departments as one of the main factors in improving the quality of financial reporting. Keywords: corporate governance; Financial Statements; financial analysts; transparency of reporting; investors; Saudi Arabia.

Market incidence of carbon information disclosure in the oil and gas industry: the mediating role of financial analysts and governance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Denis Cormier ◽  
Charlotte Beauchamp
Keyword(s):  
Corporate Governance ◽  
Oil And Gas ◽  
Financial Analysts ◽  
Oil And Gas Industry ◽  
Environmental Risks ◽  
Gas Industry ◽  
Analyst Following ◽  
Content Type ◽  
Mediating Role ◽  
The Impact

Purpose This study aims to assess the informativeness of carbon emission data for the stock markets and the mediating role played by financial analysts and the quality of the governance on this issue. Design/methodology/approach Relying on structural equation modelling, the authors assess the relation between embedded CO2 disclosure or CO2 emissions disclosure and the stock market valuation (Tobin Q), considering the mediating roles played by financial analysts (external monitoring) and corporate governance (internal monitoring). Findings Results based on a sample of North American firms in the oil and gas industry are the following. The disclosure of embedded CO2 is negatively associated with a firm’s market value, but this association is mediated by analyst following and corporate governance. The disclosure of yearly CO2 emissions is also negatively related to stock market value, while corporate governance mediates this negative impact, and analysts following does not. Considering that yearly CO2 emissions represent short-term environmental risks, whereas embedded CO2 represents long-term environmental risks, it appears important to consider embedded CO2 when studying the impact of carbon disclosure on firm value. The authors also show that a firm’s environmental performance (measured by Carbon Disclosure Project – CDP) is positively associated with two mediating variables (i.e. analyst following and corporate governance). Originality/value The study results suggest that CO2 emissions information is less relevant than embedded CO2 in attracting financial analysts when they are assessing a firm’s value because it represents short-term environmental risks, whereas embedded CO2 represents long-term environmental risks. Therefore, the authors consider important to include embedded CO2 when studying the impact of environmental disclosure on a firm’s value.

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