Career Experience and Executive Performance: Evidence from Former Equity Research Analysts

Abstract

This study examines the portability of skillsets to the top executive position. In particular, we examine CEOs and CFOs who have experience as equity research analysts, finding these executives generate earnings guidance that is more accurate than that of other executives, and lead M&A transactions with significantly higher announcement returns. For available executives, we examine their work histories as research analysts, finding stronger results for those who were more accurate forecasters, better stock pickers, more experienced, and those with smaller gaps between their analyst and executive jobs. Beyond these outcomes, we find these executives provide clearer answers to analysts during conference calls, especially when answering forward-looking and quantitative questions. Overall, our evidence suggests that specific skills gained in executives’ formative years significantly impact corporate performance outcomes.

Keywords: Executives, Career experience, Equity analyst, M&A, Earnings forecasts, Conference calls

JEL Classification: M41, G24, J24