Corporate governance and target price accuracy

Cheng, Lee Young; Yi, Su; Yan, Zhipeng; Zhao, Yan

doi:10.1016/j.irfa.2019.05.005

Cited by 22 publications

(18 citation statements)

References 61 publications

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“…Regarding the IGC variable, which represents the corporate governance variable, there are indications that a high level of governance improves the share value, and these results are aligned with the results found by Cheng et al (2019).…”

Section: Results Discussionsupporting

confidence: 82%

“…Research carried out in other countries perpetuates themes, such as: 1. determinants of financial fraud and corporate governance (Yang et al, 2017); 2. ownership, governance and fraud structure in China (Chen, Firth, Gao, & Rui, 2006); 3. corporate fraud, systematic risk and shareholder enrichment (Cloninger & Waller, 2000); 4. closing pressure, executive compensation and corporate fraud in China (Zhou, Zhang, Yang, Su, & An, 2018); 5. corporate value governance in China (Cheng, Su, Yan, & Zhao, 2019), in the United States (Brown & Caylor, 2006;Bhagat & Bolton, 2019) and in the Gulf (Pillai & Al-Malkawi 2018).…”

Section: Theoretical Foundationsmentioning

confidence: 99%

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Irregularities and the Market Value of Companies

Santos

Funchal

Nossa

2020

RAM, Rev. Adm. Mackenzie

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Purpose: To investigate the impact of the irregularities under analysis and/or judged in the sanctioning administrative proceedings of the Securities and Exchange Commission on the market value of Brazilian companies. Thus, we used the signaling theory to analyze how stakeholders interpret situations and where the available information is asymmetric and incomplete among market agents. Originality/value: The study was based on the assumption that the conviction within the scope of the regulatory body can negatively affect the company’s reputation and value. Empirical evidence indicates that irregularities affect market sentiment. On the other hand, the company can present a better market value if an effective and efficient corporate governance is established, aligning the interests of stakeholders and management. Design/methodology/approach: Information was collected with quarterly data covering the period from 2010 to 2018. Two hypotheses were tested by means of regression analysis in OLS with pooled data, panel - fixed effects and 2SLS. Findings: The results indicated that the irregularities, in the analyzed period, did not impact the companies’ market value in the estimation by MQ2E. We suggest to the chief executive officer (CEO) and the chief financial officer (CFO) that they assess the level of corporate governance of their companies and invest in the search for excellence since the best levels of governance bring a positive signal to the market. The CEO is advised to pay attention to the fact that good governance is not enough to keep companies from being irregular.

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Section: Results Discussionsupporting

confidence: 82%

Section: Theoretical Foundationsmentioning

confidence: 99%

Irregularities and the Market Value of Companies

Santos

Funchal

Nossa

2020

RAM, Rev. Adm. Mackenzie

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“…More recent studies on target price focus either on the determinants of target prices (Da et al 2016) or on exploring the possible relationship between their accuracy and a variety of analysts, markets, accounting systems (Bradshaw et al 2019), firm or governance (Cheng et al 2019) characteristics among others, happily ignoring the fact most evidence points to very low accuracy levels.…”

Section: Literature Overviewmentioning

confidence: 99%

Accuracy of European Stock Target Prices

Almeida¹,

Gaspar

2021

JRFM

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Equity studies are conducted by professionals, who also provide buy/hold/sell recommendations to investors. Nowadays, target prices determined by financial analysts are publicly available to investors, who may decide to use them for investment purposes. Studying the accuracy of such analysts’ forecasts is, thus, of paramount importance. Based upon empirical data on 50 of the biggest (larger capitalisation) European stocks over a 15-year period, from 2004 to 2019, and using a panel data approach, this is the first study looking at overall accuracy in European stock markets. We find that Bloomberg’s 12-month consensus target prices have no predictive power over future market prices. Our panel results are robust to company fixed effects and subperiod analysis. These results are in line with the (mostly US-based) evidence in the literature. Extending common practice, we perform a comparative accuracy analysis, comparing the accuracy of target prices with that of simple capitalisations of current prices. It turns out target prices are not better at forecasting than simple capitalisations. When considering individual regressions, accuracy is still very low, but it varies considerably across stocks. By also analysing the relationship between both measures—target prices and capitalised prices—we find evidence that, for some stocks, capitalised prices partially explain how target prices are determined.

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“…However, Cheng et al (2019) explain that although it might be challenging to determine the characteristic quality of financial information, nevertheless, corporate governance can be seen as an apt representation, particularly since it affects the quality and quantity of financial information a firm discloses/communicates to investors. Furthermore, it has been documented in the literature that corporate governance encompasses the controls and procedures that exist to ameliorate the conflict of interests between management and shareholders, and ensure the disclosure of all relevant information to shareholders.…”

Section: Degeorgementioning

confidence: 99%

Is the market surprised by the surprise?

Kyaw¹,

Olugbode

Petracci

2020

Int J Discl Gov

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This study examines how the market reacts to earnings surprises with different characteristics such as future earnings prospects and historical surprises embedded in the earnings announced.We also explore the effect of corporate governance on market reaction to earnings information disseminated through earnings announcements. The sample comprises of 1,620 US firms for the period 2002 -2016. Using a regression-based approach, the results reveal that the market reacts to earnings surprises, particularly, to their sign, magnitude, persistence, and the future earnings prospects. Moreover, these different characteristics of earnings surprises are more important for negative surprises than for positive surprises. Furthermore, we find evidence for the information transparency theory that earnings announcements are a relatively more important source of information for low corporate governance firms than for high corporate governance firms. Finally, historical earnings information is more relevant for low corporate governance firms, whereas prospective earnings information is more important for high corporate governance firms. This study contributes to the extant literature by revealing that the market does not only react to the magnitude/sign of the surprises but also to other additional characteristics of earnings surprises. The study also reveals that firm governance influences how the market reacts to earnings information announced. Consequently, managers should be mindful that strengthening firm corporate governance could improve investors' confidence in earnings announced.

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Corporate governance and target price accuracy

Cited by 22 publications

References 61 publications

Irregularities and the Market Value of Companies

Irregularities and the Market Value of Companies

Accuracy of European Stock Target Prices

Is the market surprised by the surprise?

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