Long Horizon Institutional Investors and the Relation Between Missing Quarterly Analyst Forecasts and CEO Turnover

Abstract

This study investigates the effect of long horizon institutional ownership on CEO career concerns to meet the short-term earnings benchmark by examining the extent to which long horizon institutional investors mitigate the positive relation between CEO turnover and missing the quarterly consensus analyst forecast. After controlling for the general performance-turnover relation, I find that long horizon institutional investors mitigate the positive relation between CEO turnover and missing the quarterly consensus analyst forecast. This finding is stronger when CEOs focus on long-term value creation and do not sacrifice long-term value to boost current earnings, and is stronger when the monitoring intensity by long horizon institutional investors is greater. Overall, the results suggest that long horizon institutional investors serve a monitoring role in alleviating CEO career concerns to meet the short-term earnings benchmark.

Keywords: Long horizon institutional investors; Missing the quarterly analyst forecast; CEO turnover; CEO career concerns; Monitoring

JEL Classification: G23; G34; M40; M41