Hiring Cheerleaders: Board Appointments Of "Independent" Directors

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Executive Summary

The authors provide evidence that firms appoint independent directors who are overly sympathetic to management, while still technically independent according to regulatory definitions. They explore a subset of independent directors for whom they 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. They find that boards appoint overly optimistic analysts who are also poor relative performers.

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