The Impact Of The Cadbury Committee Recommendations On Analysts' Earnings Forecasts: UK Evidence

This paper examines the relationship between the board structure of UK firms and the accuracy of individual analysts' earnings forecasts with respect to information asymmetry and agency theory. The authors hypothesize that managers of firms complying with the recommendations of The Code of Best Practice may have "Less to hide" and, subsequently, provide more information to outsiders (including analysts), thus facilitating more accurate analysts' forecasts. They find that analysts are more optimistic, but less accurate, for firms with a greater proportion of nonexecutive directors. This indicates that non-executive directors are inefficient at addressing the agency disclosure problem (at least in terms of the accuracy of analysts' earnings forecasts).