AAA Spark Meeting of the Regions

Do Analysts Facilitate Blockholder Monitoring?

• In Event: Corporate Governance and Media

Abstract

In this paper we investigate whether the presence of analysts improves blockholder monitoring, analysts may reduce blockholders’ monitoring costs by providing or disseminating relevant information [e.g., Chen, Harford and Lin 2015]. We first show that the association between blockholder ownership and firm value is stronger in the presence of analysts, consistent with improved blockholder monitoring. We then explore three settings in which analysts may aid blockholder monitoring: CEO compensation, CEO turnover, and merger and acquisition activity. We find mixed evidence in support of improved blockholder monitoring in these analyses. Contrary to our expectations, we find that CEOs earn more compensation, even holding constant firm size, visibility, and performance, in the presence of both analysts and blockholders. We do not detect differences in the monitoring effectiveness of blockholders regarding the probability of performance-induced turnover when analysts are present. We do find that merger announcement returns are higher when blockholders monitor with analysts. Overall, our results suggest that analyst information may improve blockholder monitoring only in certain circumstances.

Authors

• Somnath Das, University of Illinois at Chicago

• Shibao Liu, University of Illinois at Chicago

• Paige Patrick, University of Illinois at Chicago