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ABSTRACT
This paper investigates how political and legal institutions affect the governance role of auditors for a sample of firms originating in 42 countries. Prior studies focus on investor protection, but I focus on political rights as well. Specifically, I investigate how institutions and audit quality affect financial statement users' decision-making by considering properties of analysts' earnings forecasts. The evidence shows that forecast accuracy is lower and forecast dispersion higher for firms operating in countries with fewer political rights. Of particular interest is the finding that the association between Big 4 audits and earnings forecast properties is stronger in weak political environments. This finding suggests that auditors play an important—and up to now undocumented—governance role when political rights are low and political forces influential. My results also indicate that reporting reliability increases as investor protection becomes stronger. However, this result only holds for Big 4 clients, consistent with the notion that audits play a greater governance role in stronger legal environments.

PurposeThe purpose of this paper is to investigate the association between ownership structure and the properties of analysts' forecasts in China's unique corporate setting.Design/methodology/approachMultiple regression models were used to examine the influence of ownership structure mechanisms on analysts' forecast properties for listed Chinese firms during the period 2008-2012.FindingsThe paper finds that analysts' forecast accuracy is higher for listed firms with high levels of foreign ownership and managerial ownership. However, the complex pyramidal ownership structure could make corporate information less transparent and then increase the complexity of forecasting; hence, it results in less precise analysts' forecasts. Interestingly, the relationship between state ownership and analysts' forecast properties appears to be non-linear (an inverted U-shape), and the inflection point at which the relationship becomes negative occurs at state ownership over 45 per cent.Originality/valueTo the best of the author's knowledge, this paper is the first to investigate the influence of ownership structure mechanisms on the properties of analysts' forecasts in an emerging market, and the findings provide some insight on how the properties of analysts' forecast might be shaped by certain ownership and control features in the context of concentrated state ownership and complex pyramidal ownership structure.

AbstractWe investigate the link between analyst forecast characteristics and the cost of debt financing in international markets, and the influence of country‐level institutions. Using a sample of 3,768 bond issues from 42 non‐U.S. countries from 1996 to 2014, we find statistically and economically significant evidence that analysts lower bond yield spreads. Furthermore, this relation is stronger in firms operating in countries with weak institutions governing property rights, creditor protection, and disclosure standards. Overall, our findings imply that financial analysts play an important role as information intermediaries, and show that this relation is especially important in countries with weak institutional environments.

Using a multi-dimensional model of corporate transparency developed by DeBoskey and Gillett (2011) based on disclosure information, intermediary information, earnings quality information, and insider information, this study extends their findings to examine whether corporate transparency has significant power to explain cross-sectional variation in market liquidity (measured by bid-ask spreads and market depth) and analyst forecast properties (measured by analyst forecast accuracy and analyst forecast dispersion). We find that: (i) market depth and analyst forecast dispersion are significantly associated with public disclosure information transparency; (ii) market depth, forecast dispersion and forecast error are significantly associated with intermediary information transparency; and (iii) relative bid-ask spreads is signficantly associated with earnings quality information. Our findings offer an extended view of the impact of corporate transparency on a set of criterion variables expanded beyond firm-level ones to include market participants such as dealers/specialists who rely to some extent on company-provided information.