Do Analyst Recommendations Reflect Shareholder Rights?
31 Pages Posted: 5 Nov 2007 Last revised: 5 Dec 2012
Date Written: April 10, 2008
We examine whether sell-side analyst recommendations reflect shareholder rights. Our rationale is that analysts should be influenced by external governance only if market participants do not efficiently price its value. We find that stronger shareholder rights are associated with more favorable recommendations. Further analysis reveals that analysts favor firms with strong shareholder rights only when strong rights appear to be warranted, but do not penalize firms for having strong rights when not needed. These findings occupy middle ground in the debate on the pricing efficiency of shareholder rights. Moreover, we find that firm value is positively associated with the strength of shareholder rights regardless of the expected external governance structure. The latter result is consistent with a "one-size-fits-all" interpretation, and implies that firms across the board should reduce their number of anti-takeover provisions.
Keywords: analyst recommendations, corporate governance, shareholder rights, anti-takeover provisions, market efficiency
JEL Classification: G24, G29, G34, G14
Suggested Citation: Suggested Citation