A Study On The Relationship Between Common Manager And Analysts' Earnings Forecasts

In China,over 30%of the listed firms concurrently appoint their top managers as board members or senior managers of the subsidiaries.We call these firms as firms with parent-subsidiary "common managers".Wang et al.(2016)find that parent-subsidiary common managers can obtain important first-hand internal information about the firm's operation and such internal information facilitates the identification of tax planning opportunities and the implementation of tax avoidance strategies.Therefore,the operation and strategy decisions of common managers will have diverse impacts on the organizations,which process into capital market in the form of accounting information.Security analysts act as important information intermediaries on capital market.Tremendous researches focus on the accuracy and dispersion of analysts'earnings forecasts.By analyzing the hand-collected data of common managers for Chinese listed firms from 2009 to 2015,this paper studies whether the appointment of a firm's top managers as its subsidiary managers impacts the accuracy and dispersion of analysts' earnings forecasts.The results show a positive relationship between the error and dispersion of analysts' earnings forecasts and the appointment of a firm's top managers as its subsidiary managers.Moreover,as the proportion of subsidiaries with common managers serving in all listed firms' subsidiaries keep on going up,the error and dispersion of analysts' forecasts become greater and more frequent,the ratings of firms become lower.Further,the results show a positive relationship between the price synchronicity and the appointment of a firm's top managers as its subsidiary managers,which means the firms with parent-subsidiary common managers are less transparent.Last but not least,the results show that the firms with parent-subsidiary common managers carry more goodwill and intangible assets on their financial statements,which means the common managers are more willing to invest in R&D and M&A from a long term point of view.This new study reveals the inside story of the firms with parent-subsidiary common managers and contributes to the literature of corporate governance mechanisms and analysts'earnings forecasts.