• Corporate governance;
  • Analyst recommendations;
  • Analyst bias


This study examines how analysts would recommend poorly governed firms to their clients in an emerging market where information asymmetry tends to be high and shareholder rights are not well protected by legal systems. Given that analysts have incentives to access managers and to help their brokerage houses win investment banking deals, we hypothesize that poor corporate governance reveals a firm's preference for upward-bias recommendations, while good corporate governance reveals its preference for more accurate information, and that analysts are inclined to give what the firm prefers. We examine 55 652 recommendations on firms listed on the Taiwan Stock Exchange and find evidence consistent with our hypothesis. Our study implies that analysts' buy recommendations on firms with poorer corporate governance are less reliable. Furthermore, improving corporate governance not only can reduce agency problems within firms, but can also enhance information quality produced by analysts and reduce information risk faced by investors.