The Effect of Staggered Boards on Analyst Recommendations: How Do Financial Analysts View Staggered Boards?
20 Pages Posted: 10 Apr 2015
Date Written: April 8, 2015
Staggered boards (or classified boards) constitute one of the most controversial governance provisions. A fierce debate continues on the costs and benefits of staggered boards. We contribute to the debate by investigating how financial analysts view staggered boards. It has been argued that staggered boards promote managerial entrenchment and exacerbate the agency conflict. To the extent that staggered boards are detrimental and the detrimental effect is not efficiently priced in the market, financial analysts should assign less favorable recommendations to firms with staggered boards. Our empirical results bear out this hypothesis, even after controlling for other governance provisions. A propensity score matching analysis also confirms that staggered boards are viewed unfavorably by financial analysts. Finally, further analysis shows that staggered boards are not merely associated with, but likely bring about poor analyst recommendations.
Keywords: analyst recommendations, financial analysts, classified boards, staggered boards, corporate governance
JEL Classification: G30, G34
Suggested Citation: Suggested Citation