The Corporate Governance Effect Of Analyst Following

According to the traditional principal-agent theory, due to the separation of o wnership and control, the agents of the company can fully understand the company ’s internal information while managing the corporate. However, shareholders, who are principles, cannot always participate in company operation. Consequently, cor porate information can be captured significantly different between agents and prin ciples. In short, the information asymmetry happens between agents and principles. As a result, principle may not be able to control the agent’s managerial decisions and behaviors.The hypothesis of Rational Economic Man considers that the man is rational and selfish at the same time. The decision and action he makes is logical and optimizing his own benefit. The principle gives money and power to the agent through the remuneration contracts. As a rational economic man, the agent’s primary goal is to pursue their own interests, during the process of management, they can not only benefit from salaries, but also gain private interests from some behaviors such as duty consumption.The problem of agency costs is generated with the premises of asymmetric information and hypothesis of rational economic man. Whether it is external or internal corporate governance mechanism, its core is reducing agency costs. As an outsider of the company, securities analyst is expert at issuing reports of listed company, forecasting and evaluating its surplus, and analyzing the data in research report to reduce the information asymmetry between the outside investors and the company’s agents, as a result, reducing agency costs. Specifically, these data can press company’s agents in two aspects:First, exposed poor financial data and projects force the company to reduce assets abuse or investment in projects with negative NPV; second, earnings forecasts made by analyst are based on company’s stable operation, the agent will consider these forecasts to make company’s operations meet analyst’s prediction, reducing unnecessary volatility. The pressure can be interpreted as the securities analyst supervision of the activities to the company, and the supervision will force companies to profit from various assets and projects more effectively. The extent of abuse is lower under strict supervision than under feeble supervision. Therefore, the enterprise value becomes greater. In this article, the number of analysts’research reports will be regard as the basis of calculating variable. The greater this certain index is, the more sufficient this kind of information is, and the better the supervision works.According to the asymmetric information theory, the faster asset information flows, the higher information asymmetry becomes, and cash reaches its fastest liquidity. It can be used in all projects. So for the outside, the specific use from agent in company could not be easily known, which may lead to more serious agency costs. The liquidity of non-cash assets flows between cash and long-term asset, which has little agency problem. Finally, the liquidity of long-term asset is worst, but it has lowest agency costs because of the fixed purpose and pellucid usage information for outside. It may reduce agency costs based on supervision from analyst following operation. And due to different agency costs of three types of assets, analyst following may have different certain effect on value of marginal product.Analyst following will supervise the manager’s operation to some extent. As a result, management layer may work diligently, and asset, especially the utilization efficiency of cash could increase. It may have two possible consequences when asset utilization efficiency promote. Firstly, change company performance. Secondly, increase dividend distribution, for the effect of supervision may force agent to assign redundant cash to shareholder instead of putting in their own pocket.In this paper, the principal-agent theory, asymmetric information theory, free cash flow theory and pecking order theory are used to analyze the corporate gover nance effect with analysts following and its internal reasons theoretically, and have passed the empirical test. In the meantime, assets are divided into cash assets, non-cash current assets and long-term assets according to the liquidity of different kin ds, the levels of influence that analysts’following has on the utilization efficiency of different kinds of assets are analyzed respectively. In addition, this paper also ha s further examined the two company performance after the analysts’following up1 eading to the rise of three marginal value of assets, one is the improvement of performance, the other one is the increase of dividend.Specifically, the content of this paper is divided into six parts as follows:The first section is the introduction. As the beginning of the full text of the paper, it describes the background and motivation, illustrates the methods of writing papers, and summarizes the wording, the ideas and framework of the paper, describes the contribution and innovation about the paper.The second section is literature review. This section analyzes the long-standing theory of asymmetric information theory, the principal-agent theory, free cash flow theory; then analyzes the effect of corporate governance of securities analysts; next, analyzes the supervisory role of the analyst following on the company’s cash flow.The third section is the theoretical analysis and research hypotheses. This section proposed and comb analyst following, corporate governance and firm value as the theoretical basis, and on this basis, analyzes analyst following’s impact process on the firm value. This paper presents three research hypotheses:(1) more analyst following lead to the amount of cash value growth higher than the value of other assets growth;(2) more analyst following can lead to higher performance, relative to other assets, there are more cash upgrading;(3) the companies which have more analyst following will pay higher dividends after.The fourth section is the study design. Consists of sources of data, selection of samples, the definition of variables and the design of model.The fifth section is analysis of the empirical results. Includes descriptive statistics, correlation analysis, regression analysis and robust tests of all kinds of variablesThe sixth section is the conclusion and enlightenment. This section given conclusion on the basis of concludes the paper, and gives policy advice and shows the shortcomings of the paper, as well as the direction on the later research.First, the domestic research on analyst following is not rich, and most of the researches are forecast accuracy of analyst following. Therefore, the conclusions of this text enrich the research results of effect of corporate governance related analysts following, fill the gap in the research area about analyst following reduces the free cash flow problem in our country. Second, the domestic literature lacks the article which linked analysts and corporate cash value. This paper considers that the analyst following can reduce the cash abuse of company agent, thereby reduce the agency costs and enhance the firm value.Finally, illustrates the limitations in this article and future research directions:First, the current domestic research about analyst following is not yet comprehensive, there are incomplete and not comprehensive about corporate governance measure in each part, often unable to take into account the interaction between various factors, the research about analyst following and the impact of corporate governance is rare. This article is based on the model reference study abroad to build model, its inner mechanism can not fully grasp. In addition, there are some questionable choice of alternative variables, so there is still a lot room to improve the model in the future.Second, the paper about analysts following’s discussion, considering the company’s factors, but not considering analyst factors. In future studies, the analyst can be classified more granular, as divided the analysts into two types of experience and inexperience. Because of different experiences, their supervision intensity will be different, the degree of its oversight activities of the company will be different. Or it could be classified by securities company scale which analyst attached to, because the larger securities firms, analysts may be have more abundant sources of information, and the research report also will covers information more fully, making the effect of strengthening the supervision of the company’s activities.