Do Analyst/Manager Relations Travel: An Analysis of Executives Changing Employers

We examine whether strong relations between managers and analysts lead to analysts “following” the managers to new firms. 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 managers 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. Overall, the evidence suggests that relationships between managers and analysts play a significant role in analysts’ coverage decisions in a dynamic setting.