Family Firm Succession And Analysts’ Earnings Forecast Accuracy

Since the 16th Party Congress put forward the "two unwavering",the 19th Party Congress made it an important part of the new development theory,and the 20th Party Congress reiterated it again,and General Secretary Xi Jinping also emphasized this policy in many speeches,pointing out the need to achieve healthy and high-quality development of the private economy.Government’s repeated emphasis on the "two unwavering" reflects the Party Central Committee’s consistent focus and firm support for the non-public economy and private enterprises.Under the huge support of national policies,China’s private economy has developed rapidly and grown significantly in these years,constantly making great contributions to the economy of China,and its status in the national economy has continued to rise,contributing greatly to maintaining growth and promoting employment.Family enterprises are force of great importance in the private economy.Under the background that many Chinese family enterprises have entered the intergenerational succession stage,and the successful succession of family firms is vital to the sustainable development of China’s private section.In the succession of family firms,in addition to the transfer of power elements such as corporate control and job position,there is also the succession of invisible special assets such as personal relationships,social resources and management experience and so on.Studies have shown that the consequence of family business inheritance is worse company performance and strategic changes,etc.The second generation of the family faces the challenge of establishing authority,but not much research has been done on the impact on analysts,who are important information intermediary.As an information intermediary,analysts play an important role in collecting,analyzing and interpreting company information and alleviating information asymmetry,so can analysts provide accurate and objective earnings forecasts after family business succession?In view of this,this paper focuses on the relationship of family firms’ inheritance and the accuracy of analysts’ earnings forecasts and explores the impact mechanism.The research sample is Chinese A-share listed family firms from 2005-2019.Firstly,this paper carries on an empirical study on the relationship between family firm inheritance and analysts’ earnings forecast accuracy based on agency theory;secondly,this paper analyzes the impact mechanism of family firm inheritance on analysts’ earnings forecast accuracy;then,this paper explores the difference made by the separation of control rights and cash flow rights,the proportion of family executives,the combination of two positions of chairman and CEO,the degree of analyst coverage and the degree of marketization.Robustness tests are conducted by changing the definition of inheritance,the measurement of analysts’ forecast accuracy and the one-period lag of analysts’ forecast results.In addition,the effects of family firm inheritance on two other dimensions of analysts’ forecast behavior,namely,forecast optimism bias and forecast dispersion,are also tested.The main study shows that the accuracy of analysts’ earnings forecasts improves after family firm’s inheritance.The mechanism test reveals that the quality of disclosing earnings information and earnings management play the mediating role.The degree of earnings management decreases after family firm inheritance due to the loss of special assets,and the quality of information disclosure improves,which enhances the quality of public information that analysts can get and thus the accuracy of analysts’ surplus forecasts based on it.In addition,through heterogeneity analysis,this paper finds that the improvement of analysts’earnings forecasting accuracy is more significant in family firms with one person being CEO and chairman,lower proportion of family executives,more coverage by analysts,higher degree of marketization,and higher degree of separation of control rights and cash flow rights.After a series of robustness tests,the baseline findings of this study remain robust,and the forecast optimism bias and dispersion in analysts’ earnings forecasts are also reduced after family business succession.The significance and contribution of this study is that it explores the impact of family firm inheritance on the forecasting behavior of external analysts,rather than just learning the impact of the inheritance on the family firm itself.Analysts as the information intermediaries are important for mitigating information asymmetry.This paper finds that information disclosure quality plays a mediating role,and the findings can provide reference to the information disclosure decisions in intergenerational succession,family firms should provide reliable information to ensure the sustainability of succession and improve corporate governance and cultivate entrepreneurial spirit.Besides,the findings of this paper also provide reference for analysts’ decision making.Analysts should not only pay attention to public information such as financial information disclosed by family enterprises,but also strengthen the ability to obtain private information.Analysts should promote professional ability and experience and make long-term tracking of target enterprises,provide the market with more comprehensive and objective surplus forecast reports,alleviate the information asymmetry problem,play a supervisory role in regulating corporate information disclosure behavior,and help China’s family enterprises and private enterprises to develop sustainably and healthily.