Purpose – This paper aims to examine whether capital market rewards firms with good corporate sustainability practices in an international setting by using the Dow Jones Sustainability Index (DJSI hereafter) as an integrated measure of firm sustainability performance. Design/methodology/approach – There are two alternative theories regarding the impact of sustainability on firm value. The value-creating theory predicts that integration of environmental and social responsibility into corporate strategies and practices reduces firm risk and promotes long-term value creation. The value-destroying theory on sustainability suggests that managers may engage in socially responsible activities at the expense of shareholders. To perform empirical tests, we use a large international sample for a period of 13 years between 1999 (the first year when DJSI became available) and 2011. To control for self-selection bias and simultaneity, the authors use lagged values of sustainability performance in a robustness check. Findings – The authors find a positive relation between sustainability performance and firm value, after controlling for variables that have been found to affect firm value in the existing literature. The test results are consistent with the value enhancing theory (as opposed to the shareholder expense theory) regarding the role of sustainability engagement in firm valuation. Furthermore, the positive impact of sustainability engagement on firm value is primarily driven by countries with strong investor protection and with high disclosure levels. Research limitations/implications – A positive impact of sustainability performance on firm value supports the value-creating theory and rejects the value-destroying theory. Test results also suggest a more pronounced market response to corporate sustainability in countries with stronger shareholders protection and higher requirement for financial transparency. Practical implications – Given the growing international capital market and intensifying global competition, the valuation implications of sustainability in an international context is of practical interest to management, investors and regulators worldwide. Originality/value – First, it is an initial attempt to test an integrated measure of the “triple-bottom-line” definition of sustainability in an international setting. Second, our paper studies the international variation in market valuation of firm sustainability performance in terms of the value enhancing versus shareholder expense theories on sustainability. The authors explore the relevance of sustainability performance in relation to the investor protection and the reporting environment across countries.

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Purpose -The purpose of this paper is to examine whether analyst recommendations are influenced by the strength of corporate governance in emerging markets. Design/methodology/approach -It is expected that analysts take into consideration the corporate governance mechanisms when they set their recommendations because better-governed companies are associated with less risk from management and have value improvement potentials. This hypothesis is tested with a sample of 805 firms in 26 countries from emerging markets. Corporate governance effectiveness is measured by the ratings compiled by Credit Lyonnais Securities Asia, which are based on a series of corporate governance characteristics. Findings -Results show that analysts tend to issue favorable recommendations for firms with better corporate governance mechanisms. Furthermore, this evidence is concentrated in countries with a code law origin where investor protection is relatively weak. Practical implications -This paper has important implications for financial analysts and investors by offering insights into how analysts help the market efficiently incorporate the quality of corporate governance in the code law countries of emerging markets. This paper is also of interest to companies by highlighting the significance of establishing good corporate governance mechanisms. Originality/value -Examining the association between analyst recommendations and the strength of corporate governance adds to the research on the association between corporate governance and analyst activity and therefore highlight the role analysts play in the valuation of corporate governance.

PurposeThe purpose of this paper is to examine the association of analyst following with the strength of overall firm‐specific corporate governance (CG) in an emerging‐market setting.Design/methodology/approachThis paper uses empirical methodology to test the hypothesis with a sample of 753 emerging‐market companies over 2001 and 2002.FindingsIt is found that the effectiveness of CG has a positive impact on the level of analyst following. Further analyses indicate that this positive relation is concentrated in the countries with a common law tradition.Research limitations/implicationsThis paper joins prior research by providing evidence on the information intermediary role of financial analysts. It also provides supporting evidence on analysts' monitoring role in common law countries of emerging markets.Practical implicationsThe findings of this paper have implications for the decision making of managers and investors. By improving CG at the firm level, companies can significantly improve their information environments. The findings of this paper also have important implications for standard setters and regulators in emerging economies by shedding light on the importance of requesting firms to have good CG mechanisms in place, particularly in countries with relatively strong investor protection.Originality/valueAlthough prior research has documented the positive effect of country‐level investor protection or a single aspect of firm‐level CG on analyst following, it is unknown whether the level of analyst following is associated with the quality of firm‐specific CG. This paper fills in this research gap by empirically investigating this relation.

Purpose The purpose of this paper is to examine the impact of corporate governance on the capital market participants’ abilities to forecast future performance, as measured by the properties of analysts’ earnings forecasts in Asian stock markets. Design/methodology/approach This paper hypothesizes that higher corporate governance is associated with lower forecast errors, lower forecast dispersion and lower forecast revision volatility. Findings These predictions are supported with a sample of companies across eleven Asian economies over 2004-2012. The results of this paper suggest that corporate governance plays a significant role in the predictability of firm’s future performance and, therefore, improves the financial environment in Asian stock markets. Furthermore, the impact of corporate governance on analysts’ forecast properties is more pronounced in countries with strong investor protection. Research/limitations/implications The authors acknowledge the following limitations of this paper. First, the results of this paper may be subject to omitted-variable bias and endogeneity issue. The authors have used control variables in the regressions to reduce the omitted variable bias. The authors have run lead-lag regressions to address causality issue. Second, CLSA corporate governance scores are collected for largest companies in each jurisdiction. Therefore, the sample is biased towards the largest companies in those jurisdictions and may not be representative of the average firm in the Asia. Originality/value The results of this paper speak to the benefit of having strong corporate governance in terms of reducing the information asymmetry between investors and corporate management.