Do Analysts’ Recommendations Reflect Co-Opted Boards?

25 Pages Posted: 14 Jul 2020

See all articles by Suwongrat Papangkorn

Suwongrat Papangkorn

affiliation not provided to SSRN

Pattanaporn Chatjuthamard

Sasin GIBA

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Piyachart Phiromswad

Sasin of Chulalongkorn University

Date Written: June 21, 2020

Abstract

Purpose: This study examines 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 CEO assumes office.

Design/methodology/approach: The present study uses univariate analysis, multi-variate regression analysis, as well as 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: 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.

Suggested Citation

Papangkorn, Suwongrat and Chatjuthamard, Pattanaporn and Jiraporn, Pornsit and Phiromswad, Piyachart, Do Analysts’ Recommendations Reflect Co-Opted Boards? (June 21, 2020). Available at SSRN: https://ssrn.com/abstract=3632267 or http://dx.doi.org/10.2139/ssrn.3632267

Suwongrat Papangkorn

affiliation not provided to SSRN

Pattanaporn Chatjuthamard

Sasin GIBA ( email )

Bangkok
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Piyachart Phiromswad

Sasin of Chulalongkorn University ( email )

Bangkok 10330
Thailand

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