CEO Networks and Information Aggregation : Evidence from Management Forecast Accuracy

To provide insight into how CEOs aggregate information from different sources to accurately forecast earnings, we examine the relation between CEO network size and management forecast accuracy. We find a negative relation between the size of the CEO’s network and management forecast error and that the relation is strongest for connections with insiders and individuals from the same industry. We also find that the relations are strongest when the firm’s earnings have a relatively high correlation with industry and macro economy, suggesting that CEOs are able to use their contacts to better identify industry and economy-wide trends. Finally, we find evidence of a substitution effect between CEO network and ability. Overall, our study contributes to the literature by providing evidence regarding how CEOs obtain information from external sources to improve their forecast accuracy