Analyst following and environmental performance: evidence of a bidirectional association

Purpose Despite existing studies examining the association between analyst following and social and environmental performance, the two-way predictive association between analyst following and corporate environmental performance remains unexplored. Therefore, this study investigates whether analyst following predicts subsequent environmental performance and whether environmental performance predicts subsequent analyst following. Design/methodology/approach We use country, industry and year fixed-effects regression analysis based on an international sample comprising 47,604 observations from nine sectors and 49 countries between 2002 and 2021. Findings We find that analyst following is positively associated with subsequent resource use and carbon emissions performance but is not significantly associated with subsequent eco-innovation performance. Conversely, stronger performance in resource use and carbon emissions is positively associated with greater subsequent analyst following, whereas eco-innovation is not significantly associated with subsequent analyst following. These bidirectional associations are robust to alternative methodologies, variable measurements and samples. The associations are stronger among non-US firms than among US firms, while we find no substantial differences between polluting and non-polluting sectors. Originality/value As analyst following may represent an important external governance mechanism, our study contributes to the literature by examining its association with environmental performance across three dimensions: resource use, carbon emissions and eco-innovation. By also examining the reverse direction, we provide evidence of a bidirectional association between analyst following and environmental performance, thereby extending our understanding of the interplay between external monitoring and corporate environmental performance.