Research On The Corporate Governance Effect Of Security Analysts In China

With the continuous improvement of Chinese securities market，The theoryand practice circles pay more and more attention on the analysts’ function. InChina, the previous studies always paid attention on the market reaction afteranalysts gave a recommendation. There are some papers which study theinfluence on analysts from firms’ characteristic, and the decision-making processof analysts. What is the role of information intermediaries in corporategovernance? Do analysts serve as external monitors to managers, or do they putexcessive pressure on managers? This paper examines equity analysts’ influenceon corporates’ value and managers’ earnings management.We select953companies from A stock markets as our samples, and the studyperiod starts from2007to2010. We get rid of the effect of the size of companiesand industry, and we select the analyst’ residual coverage as the proxy of analysts’coverage on companies. We use multiple variables regression to research therelation among analysts’ coverage, corporate value and earns management.Firstly, we study the impact on the value of the company from analysts’residual coverage to verify the existence of the effect of corporate governance.Then, we research the mutual influence between earnings management andanalyst coverage to seek the most direct evidence from the companies’ financialdata. Last, to address the potential endogeneity between analyst coverage andearnings management, we use an instrumental variable based whether firms areincluded in the HUSHEN300index or not.The developments of analyst industry help investors find the valuable firmsand give excess monitoring effect on managements. The monitoring effect ofanalysts is very significant to protect investors and promote the security market’sdevelopment.