Managerial Ability and Analyst Participation on Earnings Conference Calls: Evidence from CEO Turnover
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[Purpose]Ahn et al. (2022) find a positive association between managerial ability and the number of questions from analysts on conference calls. They further document that there is a greater increase in forecast accuracy around conference calls when more questions are asked of higher ability managers. They interpret these findings as suggesting that managers with high ability induce more questions from analysts on conference calls. However, the positive association they document could be also driven by correlated omitted firm characteristics such as firm performance and information environment. This paper aims to address these alternative explanations by exploiting CEO turnover as a shock to managerial ability. [Methodology]Using CEO turnover as a shock to managerial ability, we investigate whether the change in managerial ability following CEO turnover is associated with the change in analysts’ participation in earnings conference calls. More specifically, we examine how the change in managerial ability around CEO turnover affects the change in the number of questions asked by analysts. [Findings]Consistent with the findings from Ahn et al. (2022), we find that the change in managerial ability around CEO turnover is positively associated with the change in the number of questions from analysts on conference calls. We further show that this positive association is primarily driven by the positive change in managerial ability. We also find that there is a greater increase in analyst forecast accuracy when more questions are asked of more able incoming managers relative to departing managers. Finally, we find that the number of non－financial and forward－looking questions asked is increasing in managerial ability. [Implications]These findings from CEO turnover suggest that managerial ability plays an important role in inducing analyst participation in earnings conference calls and as a result, in shaping the firm’s information environment.
Abstract
[Purpose]Ahn et al. (2022) find a positive association between managerial ability and the number of questions from analysts on conference calls. They further document that there is a greater increase in forecast accuracy around conference calls when more questions are asked of higher ability managers. They interpret these findings as suggesting that managers with high ability induce more questions from analysts on conference calls. However, the positive association they document could be also driven by correlated omitted firm characteristics such as firm performance and information environment. This paper aims to address these alternative explanations by exploiting CEO turnover as a shock to managerial ability. [Methodology]Using CEO turnover as a shock to managerial ability, we investigate whether the change in managerial ability following CEO turnover is associated with the change in analysts’ participation in earnings conference calls. More specifically, we examine how the change in managerial ability around CEO turnover affects the change in the number of questions asked by analysts. [Findings]Consistent with the findings from Ahn et al. (2022), we find that the change in managerial ability around CEO turnover is positively associated with the change in the number of questions from analysts on conference calls. We further show that this positive association is primarily driven by the positive change in managerial ability. We also find that there is a greater increase in analyst forecast accuracy when more questions are asked of more able incoming managers relative to departing managers. Finally, we find that the number of non－financial and forward－looking questions asked is increasing in managerial ability. [Implications]These findings from CEO turnover suggest that managerial ability plays an important role in inducing analyst participation in earnings conference calls and as a result, in shaping the firm’s information environment.
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