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

See all articles by KJ Lee

KJ Lee

Pepperdine University - Graziadio School of Business and Management

Bok Baik

Seoul National University

Hyunkwon Cho

Sungkyunkwan University

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Date Written: January 16, 2019

Abstract

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

Lee, Kwangjin and Baik, Bok and Cho, Hyunkwon and Johnson, Marilyn F., Disclosure Policy when an Analyst is on the Board of Directors: Evidence from Management and Analyst Earnings Forecasts (January 16, 2019). 2019 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=3317171

Kwangjin Lee (Contact Author)

Pepperdine University - Graziadio School of Business and Management ( email )

Malibu, CA
United States

Bok Baik

Seoul National University ( email )

Seoul
Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Hyunkwon Cho

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-0152 (Phone)
517-432-1101 (Fax)

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