Disclosure Policy when an Analyst is on the Board of Directors: Evidence from Management and Analyst Earnings Forecasts
36 Pages Posted: 17 Jan 2019 Last revised: 10 Mar 2019
Date Written: January 16, 2019
This paper examines corporate disclosure policy when the board includes a director whose employment history includes work as a financial analyst. We posit when an analyst serves on the board of directors, the analyst will monitor management to improve corporate transparency. We find the presence of an analyst on a board increases the likelihood of management earnings forecasts. Also, our results also show firms with an analyst on the board provide more accurate, narrower, and more precise management earnings forecasts than other firms. Appointing firms’ benefits are larger in informationally opaque firms such as small firms, firms with low analyst coverage, and highly leveraged firms. Firms with an analyst on the board have higher analyst forecast accuracy and lower dispersion in analysts’ earnings forecasts. Last, appointing firms experience significant increases in management forecast accuracy and precision. Collectively, our results suggest analyst directors play an important role in enhancing corporate transparency.
Keywords: Corporate disclosure, Analysts on the board of directors, Information environment, Management forecasts, Analyst forecasts
JEL Classification: G32, M41, M45
Suggested Citation: Suggested Citation