Do Managers’ Concurrent-Post Ties Affect Analysts’ Forecast Accuracy?

27 Pages Posted: 14 Apr 2020

See all articles by Chaofan Li

Chaofan Li

Huazhong University of Science and Technology (Formerly Tongi Medical University) - School of Management

Shengnian Wang

Shihezi University

Tian Zhifan

Huazhong University of Science and Technology (Formerly Tongi Medical University) - School of Management

Pin Zhou

Huazhong University of Science and Technology (Formerly Tongi Medical University)

Date Written: March 24, 2020

Abstract

This paper examines whether the network ties help explain variation in analysts’ forecast accuracy and how the relationship between network ties and analysts’ forecast accuracy varies depending on the nature and context of those ties. We posit that the analysts could develop a valuable relationship with the chairman or CEO through their covering process, and thus acquire information of those managers’ concurrent-post companies through this concurrent-post ties. We find that the analysts who cover both companies provided formal job for chairman or CEO (called “focus firms”) and companies provided concurrent-post job for those managers (called “peer firms”) during the same year issue more accurate forecasts for the peer firms. This phenomenon is more significant especially when the chairman or CEO of the focus firms has worked more than two years in the peer firms, the peer firms’ earnings quality is low, institutional investors hold more shareholdings in the peer firms, analysts offer more efforts for the focus firms, and the managers of the focus firms hold the managers’ posts in the peer firms. Further research finds that the higher the proportion of focus-peer firm pairs in analyst portfolio, the less accuracy of the other firms covered by the analysts who follow both the focus firms and the peer firms simultaneously, suggesting that those analysts need invest more efforts to maintain a relationship with the focus firms’ managers. Finally, this paper also finds that analysts tend to issue optimistic forecasts for the focus firms during the litigation, in order to reward managers who offer private information of peer firms to analysts though their social network formed in the experience of concurrent posts.

Keywords: concurrent-post ties; analysts’ earnings forecasts; accuracy

JEL Classification: G3

Suggested Citation

Li, Chaofan and Wang, Shengnian and Zhifan, Tian and Zhou, Pin, Do Managers’ Concurrent-Post Ties Affect Analysts’ Forecast Accuracy? (March 24, 2020). Available at SSRN: https://ssrn.com/abstract=3560019 or http://dx.doi.org/10.2139/ssrn.3560019

Chaofan Li

Huazhong University of Science and Technology (Formerly Tongi Medical University) - School of Management ( email )

1037 Luoyu Road
Wuhan, Hubei 430074
China

Shengnian Wang

Shihezi University ( email )

China

Tian Zhifan

Huazhong University of Science and Technology (Formerly Tongi Medical University) - School of Management ( email )

1037 Luoyu Road
Wuhan, Hubei 430074
China

Pin Zhou (Contact Author)

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

Wuhan, Hubei
China

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