Analyst Activity Around the World

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Abstract
In this paper we provide evidence on analyst activity and performance in 47 countries around the world, including several emerging market economies. Our empirical analysis first demonstrates wide variation in the extent and accuracy of analyst activity across our sample countries. A handful of country-specific measures, such as the average firm size, the size of the stock market relative to country GDP, the quality of accounting disclosures, and the country's legal origin, explain a sizeable part of this variation. For a subset of 15 emerging markets in Asia and Latin America, we also investigate the proposition that the business groups, commonly found in these regions, which often take the form of pyramidal ownership structures, hamper analyst activity and their forecast performance. We find that, after controlling for other factors, the earnings of group affiliates are indeed harder to forecast than those of unaffiliated firms. However, group affiliates are more likely to be followed by analysts. Our analysis also shows that the magnitude of the group effect is small, and that it is overshadowed by country-specific contextual factors. Overall, our results are consistent with the view that the transparency problem in an economy is primarily influenced by its legal and information context, rather than by how companies are organized in the economy.

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