Do Analysts Follow Managers that Switch Companies? An Analysis of Relations in the Capital Markets

49 Pages Posted: 6 Sep 2009 Last revised: 28 Apr 2013

Francois Brochet

Boston University - Department of Accounting

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business

Suraj Srinivasan

Harvard Business School

Date Written: April 25, 2013

Abstract

We examine the importance of professional relationships developed between analysts and managers by investigating analyst coverage decisions in the context of CEO and CFO moves between publicly listed firms. We find that top executive moves from an origin firm to a destination firm trigger analysts following the origin firm to initiate coverage of the destination firm in 10% of our sample, which is significantly higher than in a matched sample. Analyst-manager “co-migration” is significantly stronger when both firms are within the same industry. Analysts who move with managers to the destination firm exhibit more intense and accurate coverage of the origin firm than they do in other firms and compared to other analysts covering the origin firm. The advantage no longer holds after the executive’s departure, and most of the analysts’ advantage does not carry over to the destination firm. However, the analysts do increase the overall market capitalization of firms in their coverage portfolio. Our results hold after Regulation Fair Disclosure, suggesting that these relationships are not based on selective disclosure. Overall, the evidence shows both the importance and limitations of professional relations in capital markets.

Keywords: Management turnover, Analyst coverage, Capital market relationships

JEL Classification: C93, M41

Suggested Citation

Brochet, Francois and Miller, Gregory S. and Srinivasan, Suraj, Do Analysts Follow Managers that Switch Companies? An Analysis of Relations in the Capital Markets (April 25, 2013). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1465064 or http://dx.doi.org/10.2139/ssrn.1465064

Francois Brochet

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Suraj Srinivasan (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700

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