The impact of corruption on analyst coverage

This study aims to investigate the impact of country-level corruption and firms’ anti-bribery policies on analyst coverage. Analyst coverage has been identified as a powerful tool to detect fraud and should equally act as a possible tool to reduce corruption.

This study used a negative binomial count regression method on a longitudinal data set of a sample of S&P Global 1200 companies for the years 2010-2015. To control for potential endogeneity bias and improve the reliability of the estimation, both country-level corruption and firms’ anti-bribery policies variables were instrumented.

After controlling potential endogeneity bias, the results show that the adoption of anti-bribery policies at firm level attracts more analysts to follow a firm. The results for corruption at country level show that analyst coverage increases in less corrupted countries indicating that the costs of corruption exceed its potential benefits. When the variables corruption at country level and anti-bribery policies are interacted, the relationship is positive and highly significant.

Given the potential important role played by anti-corruption measures, firms are encouraged to adopt them to reduce the incidence of corruption and to increase analyst coverage, which will reinforce the benign effect of monitoring.

Although the literature on corruption at the country level is rich, it is geared towards the determinants of corruption in contrast to its consequences, and fewer studies have focused on the impact of corruption at firm level because of data limitations. This paper addresses this gap and contributes to the literature on the consequences of corruption at firm level.