Analyst Following, Staggered Boards, and Managerial Entrenchment

36 Pages Posted: 29 May 2012 Last revised: 3 Apr 2015

Pornsit Jiraporn

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

Pandej Chintrakarn

Mahidol University International College (MUIC)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: July 3, 2012

Abstract

We use agency theory to explore how analyst coverage is influenced by the managerial entrenchment associated with the staggered (or classified) board. The empirical evidence suggests that firms with staggered boards attract significantly larger analyst following. We also document that firms with staggered boards experience less information asymmetry. Staggered boards insulate managers from the discipline of the takeover market. Entrenched managers are well-protected by the staggered board and have fewer incentives to conceal information, resulting in less information asymmetry. The more transparent information environment facilitates the analyst’s job. As a consequence, more analysts are attracted to firms with staggered boards. Our results also show that the impact of staggered boards on analyst coverage exceeds, by five to seven times, the average effect of other corporate governance provisions. We also document the beneficial role of analyst coverage in improving firm value. Our results are consistent with the notion that analysts, as information intermediaries, provide oversight over management and thus help alleviate agency conflicts. The positive effect of analyst coverage, however, is severely reduced when the firm has a staggered board in place.

Keywords: board classification, staggered boards, classified boards, analyst following, analyst coverage, corporate governance, governance mechanisms

JEL Classification: G34, M41

Suggested Citation

Jiraporn, Pornsit and Chintrakarn, Pandej and Kim, Young Sang, Analyst Following, Staggered Boards, and Managerial Entrenchment (July 3, 2012). Available at SSRN: https://ssrn.com/abstract=2070132 or http://dx.doi.org/10.2139/ssrn.2070132

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

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

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