The literature suggests that staggered boards may have two opposite effects on earnings management: the expropriation view emphasizes the exacerbating effect, whereas the quiet life view advocates the mitigating effect. We use two approaches to examine this issue: a small-sample test based on whether firms are accused of committing financial reporting fraud, and a large-sample test based on the absolute value of unexpected accruals. We find that staggered boards are associated with lower likelihoods of committing fraud and smaller magnitudes of absolute unexpected accruals. Consistent with prior studies, we also find that staggered boards are negatively associated with firm value. The results suggest that staggered boards may enable managers to enjoy the quiet life and lessen their motivation to increase firm value; as a consequence, managers are not motivated to manage earnings.

This study examines the association between informed short selling and a firm's position in the board interlock network formed by shared directors. We find that better-connected firms experience higher levels of informed short selling and that this association is driven by both eigenvector centrality (a measure that accounts for both the quantity and quality of firms’ ties) and betweenness centrality (a measure of the extent to which firms serve as information intermediaries), not by degree centrality (a measure that only counts the quantity of their ties) in interlock networks. In addition, the positive association between interlock centrality and informed trading is more pronounced for firms whose directors have more opportunities to interact with directors of external firms in the network, consistent with director information leakage serving as a plausible underlying channel. Our further tests do not support an alternative interpretation based on short sellers’ superior processing of public information. Our findings have policy implications for regulators and professional director associations.

We explore the effect of corporate opacity on the relation between staggered boards and firm value. We find that through mitigating takeover pressure, staggered boards become increasingly beneficial to firm value as opacity increases. In addition, we document that staggered boards reduce value only in transparent firms. Additional tests indicate that, as opacity increases, staggered boards bear an increasingly positive relation to research and development and CEO pay-performance sensitivity. Taken together, these results suggest that corporate opacity affects the value impact of takeover protection.

Social psychology research suggests that management groups under greater external pressure are more prone to groupthink (i.e., a tendency to reach premature consensus), leading to greater performance volatility. To isolate the group dynamics channel, we focus on the pressure management faces from largely uninformed and dissatisfied non-blockholders. Consistent with the groupthink view, we find that non-blockholder dissatisfaction is positively associated with performance volatility, which is further corroborated by tests addressing omitted variable bias and reverse causality. In addition, the baseline relationship is stronger in firms with greater interaction among directors, more powerful CEOs, and less diverse boards. Our findings suggest that non-blockholder dissatisfaction heightens performance volatility by exacerbating groupthink.

We test the relationship between takeover protection and voluntary disclosure in a setting of antitakeover laws in a firm’s state of incorporation. After correcting for the endogeneity of firms’ incorporation choices, we find that firms incorporated in states with more antitakeover laws have higher levels of voluntary disclosure and stock market liquidity. Further tests do not support shareholder demands being the driving force for this association. Our findings are consistent with takeover protection and poor disclosure serving as substitute mechanisms for deterring takeovers. Therefore, as antitakeover statutes mitigate takeover threats, they enhance managers’ incentives to disclose more in order to realize capital market benefits.

We examine the impact of analyst coverage on corporate tax aggressiveness. To address endogeneity concerns, we perform a difference-in-differences analysis using a setting which causes exogenous decreases in analyst coverage. Our tests identify a negative causal effect of analyst coverage on tax aggressiveness, suggesting that higher analyst coverage constrains corporate tax aggressiveness. Further cross-sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments. Our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts’ demand for more transparent information, which in turn reduces tax aggressiveness.

Career-concerned analysts are averse to firm risk. Not only does higher firm risk require more effort to analyze the firm, thus constraining analysts' ability to earn more remuneration through covering more firms, but it also jeopardizes their research quality and career advancement. As such, career concerns incentivize analysts to pressure firms to undertake risk-management activities, thus leading to a lower cost of debt. Consistent with our hypothesis, we find a negative association between analyst career concerns and bank loan spreads. In addition, our mediation analysis suggests that this association is achieved through the channel of reducing firm risk. Additional tests suggest that the effect of analyst career concerns on loan spreads is more pronounced for firms with higher analyst coverage. Our study is the first to identify the demand for risk management as a key channel through which analysts help reduce the cost of debt.

We examine how the threat of exit by non‐blockholders (investors with ownership <5%) relates to firms' income smoothing. Unlike informed blockholders, non‐blockholders lack private information and therefore rely more on reported accounting numbers to evaluate firm performance. To isolate the exit threat, we use the unique setting in Japan where strong firm‐centric social norms and lack of insider access lead non‐blockholding foreign institutions to influence management primarily through the threat of exit. We predict and find that foreign non‐blockholders' exit threat is positively associated with the extent of income smoothing. This effect is more pronounced for firms less embedded in Japan's stakeholder‐based system, firms with greater stock liquidity, and firms with higher US institutional ownership. In addition, smoothing associated with such an exit threat, on average, is informative. Our findings suggest that Japanese firms under non‐blockholders' exit threat increase income smoothing to reduce perceived uncertainty and that such smoothing generally meets non‐blockholders' information needs.