Hiring Cheerleaders: Board Appointments of "Independent" Directors

Lauren Cohen, Andrea Frazzini () and Christopher Malloy ()

No 14232, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide evidence that firms appoint independent directors who are overly sympathetic to management, while still technically independent according to regulatory definitions. We explore a subset of independent directors for whom we have detailed, micro-level data on their views regarding the firm prior to being appointed to the board: sell-side analysts who are subsequently appointed to the board of companies they previously covered. We find that boards appoint overly optimistic analysts who are also poor relative performers. The magnitude of the optimistic bias is large: 82.0% of appointed recommendations are strong-buy/buy recommendations, compared to 56.9% for all other analyst recommendations. We find that appointed analysts' optimism is stronger at precisely those times when firms' benefits are larger, and that appointing firms increase earnings management, and perform poorly, following these board appointments.

JEL-codes: G28 G34 J24 J44 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-bec
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Lauren Cohen & Andrea Frazzini & Christopher J. Malloy, 2012. "Hiring Cheerleaders: Board Appointments of "Independent" Directors," Management Science, INFORMS, vol. 58(6), pages 1039-1058, June.

Downloads: (external link)
http://www.nber.org/papers/w14232.pdf (application/pdf)

Related works:
Journal Article: Hiring Cheerleaders: Board Appointments of "Independent" Directors (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14232

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14232

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().