Board independence and analysts' forecast accuracy: R&D perspective

Research and development (R&D) activities are essential for firm growth and profitability. However, R&D activities also exacerbate information complexity in the financial markets. Therefore, the accuracy of earnings forecasts suffers when R&D expenses are high. This study aims to examine whether board independence can mitigate the adverse effect of high R&D expenditure on analysts' forecasts. Using a sample of 11,645 annual observations from 1997 to 2016, we find that board independence improves analysts' forecast accuracy for R&D-intensive firms. The improvement is more pronounced in firms with low analyst coverage and powerful CEOs. These results are robust with an alternative measure of information asymmetry, a dynamic generalized method of moments (GMM) model and a quasi-natural experiment based on the Sarbanes-Oxley Act of 2002 to address endogeneity concerns.