Abstract

http://ssrn.com/abstract=1724483
 
 

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Analysts’ Forecasts During Forced CEO Changes


Sue Wright


Macquarie University - Faculty of Business and Economics; Financial Research Network (FIRN)

Steven Wu


affiliation not provided to SSRN

Charlene Chen


Macquarie University, Faculty of Business and Economics

Ka Wai (Stanley) Choi


Macquarie University - Department of Applied Finance and Actuarial Studies

December 12, 2010

Finance and Corporate Governance Conference 2011 Paper

Abstract:     
Purpose: The purpose of this paper is to examine analysts’ earnings forecasts during a period of heightened uncertainty and forecasting complexity, that of a forced change of CEO. How well do analysts utilise their information advantage to reduce information uncertainty between management and investors?

Design/Methodology/Approach: This paper uses a sample of Australian companies that are followed by analysts between 1999 and 2009, to examine the relation between properties of analysts’ forecasts (accuracy, dispersion, coverage and bias) and forced CEO turnover.

Findings: Relative to firms not undergoing CEO changes, forecasting accuracy is lower and earnings forecasts are more optimistic for firms experiencing forced CEO turnover. However dispersion and analyst coverage are not statistically different. The results are consistent with the management insider information access hypothesis, in which analysts use optimistic earnings forecasts to curry favour with firm management.

Practical Implications: Forced CEO turnover events provide a challenge to the forecasting environment for analysts. During CEO changes, investors should be aware that forecasts are less accurate and have an optimistic bias.

Originality/Value: Whilst the literature has examined analysts’ earnings forecast properties in a number of contexts that change forecast complexity, this paper is the first to examine an extensive range of forecast properties in the context of CEO changes.

Number of Pages in PDF File: 44

Keywords: analysts forecasts, forced CEO change, forecast accuracy, forecast bias, analyst coverage, forecast dispersion

JEL Classification: G14, G34, M41

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Date posted: December 29, 2010  

Suggested Citation

Wright, Sue and Wu, Steven and Chen, Charlene and Choi, Ka Wai (Stanley), Analysts’ Forecasts During Forced CEO Changes (December 12, 2010). Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: http://ssrn.com/abstract=1724483 or http://dx.doi.org/10.2139/ssrn.1724483

Contact Information

Sue Wright (Contact Author)
Macquarie University - Faculty of Business and Economics ( email )
Sydney, New South Wales 2109
Australia
Financial Research Network (FIRN) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Hai Wu
affiliation not provided to SSRN ( email )
Xiaomeng Chen
Macquarie University, Faculty of Business and Economics ( email )
Australia
Ka Wai Choi
Macquarie University - Department of Applied Finance and Actuarial Studies ( email )
North Ryde
Sydney, New South Wales 2109
Australia
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