Do Analysts Follow The Top Executives Change?

Change of top executives is an important event of listed companies as it will bringpotential uncertainty on future operation from such difference as experience and skillsbetween the processor and successor. On the other hand, as a group with professionalinvestment analysis skills as well as information bridge between companies andinvestors, analysts should track top executives change of listed companies.This paper first summarizes the historical literature on top executives change andanalysts following, building a theoretical basis for the impact of top executives changeon company governance and analysts’ motivation to follow this event. Based on theempirical data from China security market during2007to2012, it then examines therelationship between top executives change and number of financial analystsfollowing.This paper further studies market reaction to analysts following on the eventthrough case study.The study shows that:①financial analysts will track change of top executivesas it’s a major event of listed companies;②analysts generally pay more attention toforced changes of top executives than non-forced changes due to the greateruncertainty, which is consistent with conclusion of Xiaofeng Quan and Shinong Wu(2009) that market is more sensitive to forced changes of top executives;③investors’cumulative abnormal returns (car) in (0,30) post the top executives change showspositive correlation with analysts following and negative correlation with topexecutives change as analysts following will reduce information asymmetry betweencompanies and investors and thus sending negative signal from top executives change;④analysts are inclined to follow top executives change of high quality companieswith higher ROA;⑤as an effective and most important evaluation index of enterprisevalue based on Qilin Su and Wen Zhu (2009)’s research, Tobin’s Q shows that there isno significant improvement in enterprise valuation after one year of changes of topexecutives.Through those studies, this paper has not only enriched literatures on topexecutives change and analyst following but also providing some theoretical guidanceon the practice of analysts following. Simultaneously, it offers advice for investors on the rational decision on the recommendation in analyst market reports.