The objective of this paper has been to analyze the relationship between the governance index and the follow-up of financial analysts and to provide interesting perspectives on this matter which is very little approached in France. The study has been conducted on 174 French companies listed on the SBF 250 index over a period of 4 years (2008-2011).
The results, obtained by the method of regression by double least squares, show that there is a positive and significant causality relationship between the number of analysts and governance score. The financial analysts are attracted to the companies having a high level of governance.
The counter causality relationship also shows that the number of financial analysts seems to influence in return the score of corporate governance. The costs of searching information by analysts are reduced when the company regularly provides information on their profits and respects the good conduct of corporate governance. Equally, the financial analyst coverage has often been held responsible for creating excessive pressure on managers, thus pushing them to respect the governance code. Indeed, for financial markets, strengthening the cover- age is usually accompanied by an increase in pressure intensified on managers to insure the transparency and good quality of published information.
In addition, our results have shown a negative relationship between the number of financial analysts and the size of the concerned companies. Similarly, we have found that the companies listed on the US market are those which are subject to a big follow-up by financial analysts.
The Stock Exchange operators and companies are required to set more efficient strategies and measurements to improve transparency. Thereby, making the publication of certain information mandatory, which is currently voluntary, is a necessity for the French financial market. The fundamental objective is indisputably a better assessment of the value of shares on the market and a reduction in investment costs for investors.