Analysts' Forecasts Following Forced CEO Changes

Ka Wai Choi, Xiaomeng Chen, Sue Wright, Hai Wu

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper examines analysts' earnings forecasts during the period of uncertainty following a change of chief executive officer (CEO). It distinguishes between forced and non-forced CEO changes, and examines whether analysts utilize their information advantage to reduce the heightened uncertainty of a forced change of CEO. Examining a sample of Australian companies followed by analysts between 1999 and 2009, we find that forecasting accuracy is lower and earnings forecasts are more optimistic for firms experiencing forced CEO turnover compared to firms not undergoing such a change. However, dispersion is not statistically different. The results suggest that 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.

Original languageEnglish
Pages (from-to)146-173
Number of pages28
JournalAbacus
Volume50
Issue number2
DOIs
Publication statusPublished - 2014

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