Do sell-side analysts' recommendations consider business strategy in their evaluation? What is the role of corporate governance?

Abstract

This study investigates whether sell-side analysts incorporate business strategy considerations into their stock recommendations and examines the moderating role of corporate governance in this relationship. Utilizing a dataset from Capital IQ S&P and BoardEX covering UK firms from 2007 to 2018, we employ multiple regression methodologies to demonstrate that firms with well-defined business strategies (e.g., prospector vs. defender orientations) receive systematically more favorable analyst recommendations. Our findings further reveal that robust corporate governance mechanisms amplify the positive association between strategic positioning and analyst sentiment. These results suggest that analysts value strategic clarity alongside governance quality when formulating recommendations, offering practical insights for firms seeking to optimize their market positioning and for investors integrating analyst research into decision-making frameworks.