Does Corporate Governance Transparency affect the Accuracy of Analyst Forecasts?

Using country-level proxies for corporate governance transparency, this paper investigates how differences in transparency across 21 countries affect the average forecast accuracy of analysts for the country’s firms. The association between financial transparency and analyst forecast accuracy has been well documented in prior literature; however the association between governance transparency and analyst forecast accuracy remains unexplored. Using the two distinct country-level factors isolated by Bushman et al. (2004), governance transparency and financial transparency, we investigate whether corporate governance information impacts the accuracy of earnings forecasts over and above financial information. We document that governance transparency is positively associated with analyst forecast accuracy after controlling for financial transparency and other variables. Further, our results suggest that governancerelated disclosure plays a bigger role in improving the information environment when financial disclosures are less transparent. Our empirical evidence also suggests that the significance of governance transparency on analyst forecast accuracy is higher when legal enforcement is weak.