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When Do Sell-side Analyst Reports Really Matter? Shareholder Protection, Institutional Investors and the Informativeness of Equity Research


  • We thank an anonymous referee for valuable comments and suggestions. Furthermore, we thank seminar participants at the 2012 Cologne financial market colloquium, the 2012 European Financial Management Association (EFMA) annual meeting in Barcelona, and the 2013 Midwest Finance Association (MFA) annual meeting in Chicago, for helpful comments. Correspondence: Alexander Kerl.


We examine whether the informativeness of sell-side analyst reports depends on the strength of the regulatory environment of a country and the regulatory background of the institutional investors of a company. Based on both measures that we use to proxy the informativeness of analyst research (i.e., short-term market reaction and forecast errors with respect to corporate earnings), our results show that the information value of research increases as the level of investor protection increases. This result is robust to different specifications of investor protection. We further demonstrate that analyst forecasts are more (less) valuable when the majority of institutional investors are from strong (weak) investor protection countries.