The Regulatory Effect on the Performance of Financial Analysts: Time Series from Two Different Legal Systems
Christopher von Koch, Ola Nilsson* and Karin Jonnergård
School of Business and Economics, Linnaeus University, Sweden
- *Corresponding Author:
- Ola Nilsson
School of Business and Economics
Linnaeus University, Nygatan 18B
392 34 Kalmar, Sweden
Tel: +46 (0) 772 28 80 00
E-mail: ola.nilss[email protected]
Received September 10, 2013; Accepted September 29, 2013; Published October 3, 2013
Citation: Koch C, Nilsson O, Jonnergård K(2013) The Regulatory Effect on the Performance of Financial Analysts: Time Series from Two Different Legal Systems. J Bus Fin Aff 2:113. doi:10.4172/2167-0234.1000113
Copyright: © 2013 Koch C, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
The focus of this paper is the relationship between regulatory settings and financial analysts’ performance, which is examined by studying the level of shareholder protection and the performance of financial analysts in two countries with different legal origins. By using a newly constructed index to measure shareholder protection, we are able to analyze how changes in shareholder protection over time can affect analysts’ performance. By comparing two countries with different legal traditions (the United Kingdom (UK) and Sweden), we are also able to assess whether the underlying legal origin is an influential factor. The results show that increased shareholder protection improves forecast accuracy in both the UK and Sweden, supporting the idea that stronger shareholder protection regulations improve analysts’ performance whether the legal context is rooted in common law or Scandinavian civil law tradition. The findings also indicate that strengthened shareholder protection decreases forecast dispersion in Sweden and forecast bias in the UK, further supporting the idea that stronger shareholder protection improves analysts’ performance even though the results differed across legal contexts. We did, however, find a substitution effect in both countries: Strengthened shareholder protection makes analysts’ services less valuable to investors, thus leading to a reduction in the number of analysts. Our main conclusion is that changes in shareholder protection affect the performance of analysts irrespective of the country’s legal origin, i.e. common law or Scandinavian civil law. However, legal origin seems to have an impact on the magnitude of analysts’ performance based on changes in shareholder protection.