Do Capital Market Relations Travel: An Analysis of Executives Changing Employers
We examine whether strong relations between managers and market participants lead to market participants "following" the managers to new firms. Our analyses focus primarily on analysts since much of their interaction with management occurs in public. Specifically, we investigate sell-side 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 often trigger analysts following the origin firm to initiate coverage of the destination firms. Consistent with structural constraints on the sell-side analyst profession, we find that analyst-manager "co-migration," is much stronger when both firms are within the same industry. In support of the importance of relations, analysts who move with manager's to the destination firm exhibit more intense and accurate coverage of the origin firm than they do in other firms and than other analysts covering the origin firm. However, this no longer holds after the executive's departure. Turning to institutional investors, we find similar evidence of a "co-migration" which is related to the extent of institutional investment in the managers new firm and the amount of analyst co-migration, among other factors. Overall, the evidence suggests that relationships between managers and capital market participants play a significant role in the capital market participants' coverage and investment decisions in a dynamic setting.
Keywords: Business and Stakeholder Relations;