Critics of credit rating agencies’ issuer-pay revenue practice say that it allows debt issuers and arrangers to shop among agencies for the highest rating. They allege that such “rating shopping” incents rating agencies to win business by rating debt higher than warranted by actual credit risk. To eliminate inflated ratings, issuer-pay critics suggest barring debt issuers from selecting and paying rating agencies.
Issuer-pay critics assume that ratings would be accurate if only the issuer-pay incentive for inflated ratings was extinguished. But we document a historical test of this assumption, an instance when issuer-pay and rating shopping were irrelevant concerns and ratings were still inappropriately high. With issuance effectively zero in 2007-09, S&P had no commercial incentive to maintain inflated ratings on subprime mortgage-backed securities and collateralized debt obligations backed by subprime mortgage-backed securities.
Yet, S&P’s ratings were severely inflated when compared to market prices and the credit analyses of market observers. Because 2007-09 conditions still produced inflated subprime ratings, getting rid of issuer pay will also not be sufficient to improve rating agency accuracy. But if issuer-pay critics succeed in abolishing the revenue practice, it would only be the latest in a long history of ineffectual and counter-productive rating agency regulations.
{"title":"Getting Rid of Issuer-Pay Will Not Improve Credit Ratings","authors":"Douglas J. Lucas","doi":"10.2139/ssrn.3710178","DOIUrl":"https://doi.org/10.2139/ssrn.3710178","url":null,"abstract":"Critics of credit rating agencies’ issuer-pay revenue practice say that it allows debt issuers and arrangers to shop among agencies for the highest rating. They allege that such “rating shopping” incents rating agencies to win business by rating debt higher than warranted by actual credit risk. To eliminate inflated ratings, issuer-pay critics suggest barring debt issuers from selecting and paying rating agencies.<br><br>Issuer-pay critics assume that ratings would be accurate if only the issuer-pay incentive for inflated ratings was extinguished. But we document a historical test of this assumption, an instance when issuer-pay and rating shopping were irrelevant concerns and ratings were still inappropriately high. With issuance effectively zero in 2007-09, S&P had no commercial incentive to maintain inflated ratings on subprime mortgage-backed securities and collateralized debt obligations backed by subprime mortgage-backed securities.<br><br>Yet, S&P’s ratings were severely inflated when compared to market prices and the credit analyses of market observers. Because 2007-09 conditions still produced inflated subprime ratings, getting rid of issuer pay will also not be sufficient to improve rating agency accuracy. But if issuer-pay critics succeed in abolishing the revenue practice, it would only be the latest in a long history of ineffectual and counter-productive rating agency regulations.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115778557","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Following state-level legal changes that increase labor dismissal costs, firms increase their innovation in new processes that facilitate the adoption of cost-saving production methods, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability exhibit larger increases in process innovation and capital intensity, and larger decreases in employment and employment growth. This allows them to increase labor productivity, operating performance, and to mitigate value losses. Our evidence highlights that, by facilitating the adjustment of the input mix when conditions in input markets change, innovation ability is a key driver of firm performance.
{"title":"Shielding Firm Value: Employment Protection and Process Innovation","authors":"J. Beňa, Hernán Ortiz-Molina, Elena Simintzi","doi":"10.2139/ssrn.3223176","DOIUrl":"https://doi.org/10.2139/ssrn.3223176","url":null,"abstract":"Following state-level legal changes that increase labor dismissal costs, firms increase their innovation in new processes that facilitate the adoption of cost-saving production methods, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability exhibit larger increases in process innovation and capital intensity, and larger decreases in employment and employment growth. This allows them to increase labor productivity, operating performance, and to mitigate value losses. Our evidence highlights that, by facilitating the adjustment of the input mix when conditions in input markets change, innovation ability is a key driver of firm performance.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126347355","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
T. Aabo, Nicholai Theodor Hvistendahl, Jacob Kring
PurposeThe purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.Design/methodology/approachThis empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.FindingsThe authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.Research limitations/implicationsThe findings are based on S&P 1500 non-financial firms in the period 2007–2016.Practical implicationsThe findings have important implications in terms of CEO selection and compensation.Originality/valueThis study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.
{"title":"Corporate Risk: CEO Overconfidence and Incentive Compensation","authors":"T. Aabo, Nicholai Theodor Hvistendahl, Jacob Kring","doi":"10.2139/ssrn.3733106","DOIUrl":"https://doi.org/10.2139/ssrn.3733106","url":null,"abstract":"PurposeThe purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.Design/methodology/approachThis empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.FindingsThe authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.Research limitations/implicationsThe findings are based on S&P 1500 non-financial firms in the period 2007–2016.Practical implicationsThe findings have important implications in terms of CEO selection and compensation.Originality/valueThis study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123185121","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Managers frequently project high synergistic gains when announcing M&As. This paper analyzes when promised synergies are value-relevant. Using text analytical methods, we only find a positive relationship between synergy projections and announcement returns when promised numerical projections are credible, e.g., when accompanied by thorough verbal explanations and low impression management. Further, credibility increases when concrete instead of embellishing language is used. Hence, the more precise the information that firms disclose, the more it fosters trust in the underlying logic of the deal. Generally, investors seem to see through vacuous statements and value substance over form and verboseness of M&A announcements.
{"title":"Merger Rhetoric and the Credibility of Managerial Synergy Forecasts","authors":"Désirée-Jessica Pély, D. Schoch","doi":"10.2139/ssrn.3667797","DOIUrl":"https://doi.org/10.2139/ssrn.3667797","url":null,"abstract":"Managers frequently project high synergistic gains when announcing M&As. This paper analyzes when promised synergies are value-relevant. Using text analytical methods, we only find a positive relationship between synergy projections and announcement returns when promised numerical projections are credible, e.g., when accompanied by thorough verbal explanations and low impression management. Further, credibility increases when concrete instead of embellishing language is used. Hence, the more precise the information that firms disclose, the more it fosters trust in the underlying logic of the deal. Generally, investors seem to see through vacuous statements and value substance over form and verboseness of M&A announcements.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"184 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131886009","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced. We also document that financial media information is orthogonal to announcement day returns.
{"title":"Financial Media, Price Discovery, and Merger Arbitrage","authors":"M. Buehlmaier, J. Zechner","doi":"10.2139/ssrn.2858999","DOIUrl":"https://doi.org/10.2139/ssrn.2858999","url":null,"abstract":"Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced. We also document that financial media information is orthogonal to announcement day returns.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132551330","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study analyses whether the board characteristics (diversity attributes, competitive capital, time commitment) of companies listed on the Financial Times Stock Exchange FTSE100 exhibit a different performance compared to those associated with conventional benchmark indices (FTSE250, FTSE SMALLCAP (small capitalisation), FTSE Fledgling, and FTSE All-Shar). Using multivariate analysis and unbalanced panel data over the period 2000−2014, we provide novel evidence on how the UK stock market indices react to diversity in board characteristics. Our findings reveal that different aspects of board characteristics are significantly correlated with the performance of FTSE indices. This study further confirms that boards with high levels of diversity maintain better and more effective levels of governance, in particular for companies listed on FTSE100 and FTSE250. Interestingly, we report that the competitive capital and busyness associated with boards of companies listed on FTSE100 have professional, well-educated, and socially connected boards, and show a clear pattern whereby boards become significantly less competitive as firm size decreases.
本研究分析了在金融时报证券交易所FTSE100上市的公司的董事会特征(多样性属性、竞争资本、时间承诺)是否与传统基准指数(FTSE250、FTSE SMALLCAP(小市值)、FTSE羽翼未丰和FTSE all - share)相关的公司表现不同。利用2000 - 2014年期间的多变量分析和不平衡面板数据，我们提供了关于英国股票市场指数如何对董事会特征多样性作出反应的新证据。我们的研究结果表明，董事会特征的不同方面与富时指数的表现显著相关。这项研究进一步证实，高度多元化的董事会保持更好和更有效的治理水平，特别是在FTSE100和FTSE250上市的公司。有趣的是，我们报告说，与富时100指数上市公司的董事会相关的竞争性资本和繁忙程度有专业的、受过良好教育的和有社会联系的董事会，并显示出一个清晰的模式，即随着公司规模的缩小，董事会的竞争力显著降低。
{"title":"All on Board? New Evidence on Board Characteristics from a Large Panel of UK FTSE Indices","authors":"Abdelrhman Yusuf, Mohamed Sherif","doi":"10.3390/su12135328","DOIUrl":"https://doi.org/10.3390/su12135328","url":null,"abstract":"This study analyses whether the board characteristics (diversity attributes, competitive capital, time commitment) of companies listed on the Financial Times Stock Exchange FTSE100 exhibit a different performance compared to those associated with conventional benchmark indices (FTSE250, FTSE SMALLCAP (small capitalisation), FTSE Fledgling, and FTSE All-Shar). Using multivariate analysis and unbalanced panel data over the period 2000−2014, we provide novel evidence on how the UK stock market indices react to diversity in board characteristics. Our findings reveal that different aspects of board characteristics are significantly correlated with the performance of FTSE indices. This study further confirms that boards with high levels of diversity maintain better and more effective levels of governance, in particular for companies listed on FTSE100 and FTSE250. Interestingly, we report that the competitive capital and busyness associated with boards of companies listed on FTSE100 have professional, well-educated, and socially connected boards, and show a clear pattern whereby boards become significantly less competitive as firm size decreases.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"168 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127266510","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze the effects of regulatory interference in compensation contracts, focusing on recent mandatory deferral and clawback requirements restricting (incentive) compensation of material risk-takers in the financial sector. Moderate deferral requirements have a robustly positive effect on equilibrium risk-management effort only if the bank manager's outside option is sufficiently high, else, their effectiveness depends on the dynamics of information arrival. Stringent deferral requirements unambiguously backfire. We characterize when regulators should not impose any deferral regulation at all, when it can achieve second-best welfare, when additional clawback requirements are of value, and highlight the interaction with capital regulation.
{"title":"The Economics of Deferral and Clawback Requirements","authors":"Florian Hoffmann, R. Inderst, Marcus M. Opp","doi":"10.1111/jofi.13160","DOIUrl":"https://doi.org/10.1111/jofi.13160","url":null,"abstract":"We analyze the effects of regulatory interference in compensation contracts, focusing on recent mandatory deferral and clawback requirements restricting (incentive) compensation of material risk-takers in the financial sector. Moderate deferral requirements have a robustly positive effect on equilibrium risk-management effort only if the bank manager's outside option is sufficiently high, else, their effectiveness depends on the dynamics of information arrival. Stringent deferral requirements unambiguously backfire. We characterize when regulators should not impose any deferral regulation at all, when it can achieve second-best welfare, when additional clawback requirements are of value, and highlight the interaction with capital regulation.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124315741","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate whether mandatory recognition of previously disclosed off-balance sheet items affects corporate capital structure decisions. Specifically, we use the introduction of the Statement of Financial Accounting Standards No. 158 as a quasi-exogenous shock to financial reporting decisions as it requires sponsors of defined benefit (DB) pension plans to recognize the level of pension and healthcare plan funding explicitly on the balance sheet. Our findings show that DB plan sponsors did not actively decrease financial leverage following the new accounting standard. This also obtains for subsamples of plan sponsors with tight or violated financial covenants or plan sponsors with unrated debt or low analyst following. The results suggest that the mandatory recognition did not involve sufficient costs to warrant a change in corporate funding decisions.
{"title":"Does Mandatory Recognition of Off-Balance Sheet Liabilities Affect Capital Structure Choice? Evidence from SFAS 158","authors":"Michael Axenrod, M. Kisser","doi":"10.2139/ssrn.3331061","DOIUrl":"https://doi.org/10.2139/ssrn.3331061","url":null,"abstract":"We investigate whether mandatory recognition of previously disclosed off-balance sheet items affects corporate capital structure decisions. Specifically, we use the introduction of the Statement of Financial Accounting Standards No. 158 as a quasi-exogenous shock to financial reporting decisions as it requires sponsors of defined benefit (DB) pension plans to recognize the level of pension and healthcare plan funding explicitly on the balance sheet. Our findings show that DB plan sponsors did not actively decrease financial leverage following the new accounting standard. This also obtains for subsamples of plan sponsors with tight or violated financial covenants or plan sponsors with unrated debt or low analyst following. The results suggest that the mandatory recognition did not involve sufficient costs to warrant a change in corporate funding decisions.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121099432","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Top executives’ reputation and rewards from the managerial labor market are at least partly determined by the financial information their firms convey to the capital markets. We thus examine whether managerial labor market incentives influence firms’ choices in such information transmission and whether these choices subsequently affect future outcomes in the managerial labor market. Our findings are consistent with a strategic information distortion hypothesis. Specifically, CEOs facing greater labor market incentives are more likely to engage in strategic financial disclosure choices to inflate their firms’ reported performance and to meet or narrowly beat earnings benchmarks, thereby enhancing their reputation and upward mobility in the labor market. At the same time, these CEOs are more careful not to commit disclosure maneuvers that trigger financial fraud and restatements, which will severely damage their reputation and undermine their future career prospects. These empirical patterns portray a nuanced picture of how CEOs respond strategically to labor market incentives and career concerns in making financial disclosure decisions. We further show that these decisions affect managerial labor market outcomes; consistent marginal benchmark beating leads to higher compensation and greater mobility in the labor market for CEOs.
{"title":"A Dark Side of Industry Tournament Incentives","authors":"Qianqian Huang, Feng Jiang, Feixue Xie","doi":"10.2139/ssrn.3478660","DOIUrl":"https://doi.org/10.2139/ssrn.3478660","url":null,"abstract":"Top executives’ reputation and rewards from the managerial labor market are at least partly determined by the financial information their firms convey to the capital markets. We thus examine whether managerial labor market incentives influence firms’ choices in such information transmission and whether these choices subsequently affect future outcomes in the managerial labor market. Our findings are consistent with a strategic information distortion hypothesis. Specifically, CEOs facing greater labor market incentives are more likely to engage in strategic financial disclosure choices to inflate their firms’ reported performance and to meet or narrowly beat earnings benchmarks, thereby enhancing their reputation and upward mobility in the labor market. At the same time, these CEOs are more careful not to commit disclosure maneuvers that trigger financial fraud and restatements, which will severely damage their reputation and undermine their future career prospects. These empirical patterns portray a nuanced picture of how CEOs respond strategically to labor market incentives and career concerns in making financial disclosure decisions. We further show that these decisions affect managerial labor market outcomes; consistent marginal benchmark beating leads to higher compensation and greater mobility in the labor market for CEOs.","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127651431","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Suwongrat Papangkorn, Pattanaporn Chatjuthamard, P. Jiraporn, Piyachart Phiromswad
Purpose This study aims to examine whether co-opted directors influence analysts’ recommendations. As information intermediaries, financial analysts should incorporate the quality of corporate governance into their valuation because well-governed firms are associated with lower agency costs and better performance. Co-opted directors are those appointed after the incumbent chief executive officer assumes office. The authors investigate whether board co-option has an effect on analyst recommendations. Design/methodology/approach The present study uses univariate analysis, multi-variate regression analysis and conduct a natural experiment using the Sarbanes-Oxley as an exogenous shock. Findings The results show that firms with fewer co-opted directors tend to receive more favorable recommendations, suggesting that analysts favor firms with strong corporate governance. The results hold even after controlling for various firm characteristics, including the traditional measures of board quality, i.e. board size and independent directors. Originality/value The paper is the first of its kind and offers evidence on the effect of co-opted directors on analyst recommendations. The results contribute to the literature both in corporate governance and in financial intermediaries, where analysts play a crucial role in providing information to the various participants in financial markets.
{"title":"Do Analysts’ Recommendations Reflect Co-Opted Boards?","authors":"Suwongrat Papangkorn, Pattanaporn Chatjuthamard, P. Jiraporn, Piyachart Phiromswad","doi":"10.2139/ssrn.3632267","DOIUrl":"https://doi.org/10.2139/ssrn.3632267","url":null,"abstract":"\u0000Purpose\u0000This study aims to examine whether co-opted directors influence analysts’ recommendations. As information intermediaries, financial analysts should incorporate the quality of corporate governance into their valuation because well-governed firms are associated with lower agency costs and better performance. Co-opted directors are those appointed after the incumbent chief executive officer assumes office. The authors investigate whether board co-option has an effect on analyst recommendations.\u0000\u0000\u0000Design/methodology/approach\u0000The present study uses univariate analysis, multi-variate regression analysis and conduct a natural experiment using the Sarbanes-Oxley as an exogenous shock.\u0000\u0000\u0000Findings\u0000The results show that firms with fewer co-opted directors tend to receive more favorable recommendations, suggesting that analysts favor firms with strong corporate governance. The results hold even after controlling for various firm characteristics, including the traditional measures of board quality, i.e. board size and independent directors.\u0000\u0000\u0000Originality/value\u0000The paper is the first of its kind and offers evidence on the effect of co-opted directors on analyst recommendations. The results contribute to the literature both in corporate governance and in financial intermediaries, where analysts play a crucial role in providing information to the various participants in financial markets.\u0000","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"93 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115648853","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
扫码关注我们
求助内容：
应助结果提醒方式：
京公网安备 11010802042870号