scholarly journals Do Analysts Follow Managers Who Switch Companies? An Analysis of Relationships in the Capital Markets

2013 ◽  
Vol 89 (2) ◽  
pp. 451-482 ◽  
Author(s):  
Francois Brochet ◽  
Gregory S. Miller ◽  
Suraj Srinivasan
Keyword(s):  
Capital Markets ◽  
Data Availability ◽  
Professional Relationships ◽  
Matched Sample ◽  
Regulation Fair Disclosure ◽  
Analyst Coverage ◽  
Listed Firms ◽  
Fair Disclosure ◽  
Carry Over ◽  
Selective Disclosure

ABSTRACT We examine the importance of professional relationships developed between analysts and managers by investigating 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 trigger analysts following the origin firm to initiate coverage of the destination firm in 10 percent of our sample, which is significantly higher than in a matched sample. Analyst-manager “co-migration” is significantly stronger when both firms are within the same industry. 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 compared to other analysts covering the origin firm. The advantage no longer holds after the executive's departure, and most of the analysts' advantage does not carry over to the destination firm. However, the analysts do increase the overall market capitalization of firms in their coverage portfolio. Our results hold after Regulation Fair Disclosure, suggesting that these relationships are not based on selective disclosure. Overall, the evidence shows both the importance and limitations of professional relationships in capital markets. Data Availability: Data are publicly available from sources identified in the article.

Earnings Management in Firms with Data Security Breaches

2019 ◽  
Vol 33 (3) ◽  
pp. 267-284 ◽  
Author(s):  
Howard Xu ◽  
Savannah (Yuanyaun) Guo ◽  
Jacob Z. Haislip ◽  
Robert E. Pinsker
Keyword(s):  
Earnings Management ◽  
Data Security ◽  
Data Availability ◽  
Real Earnings Management ◽  
Matched Sample ◽  
Analyst Coverage ◽  
Subsequent Performance ◽  
Security Breaches ◽  
External Monitoring ◽  
The Cost

ABSTRACT Anecdotal research suggests that management is concerned about how Data Security Breaches (DSBs) impact a firm's financial performance. We investigate: whether managers in DSB firms manipulate earnings through real earnings management (REM) and/or accrual-based earnings management (AEM); how breach type, disclosure delay, and external monitoring impact earnings management activities; and how earnings management activities influence a DSB firm's performance. Using a propensity score matched sample, results suggest that DSB firms are more likely to manipulate earnings via REM, but not AEM. Additionally, we find that DSB firms engage in REM through cutting discretionary expenses, decreasing discretionary cash spending, and reducing the cost of goods sold through overproduction. We find some evidence that firms are more likely to increase REM when DSBs involve financial information or when firms delay the DSB disclosure or have low analyst coverage. We provide evidence that REM activities lead to lower subsequent performance in DSB firms. Data Availability: The data used are publicly available from the sources cited in the text.

The Impact of Regulation Fair Disclosure: Trading Costs and Information Asymmetry

2004 ◽  
Vol 39 (2) ◽  
pp. 209-225 ◽  
Author(s):  
Venkat R. Eleswarapu ◽  
Rex Thompson ◽  
Kumar Venkataraman
Keyword(s):  
Information Asymmetry ◽  
Securities And Exchange Commission ◽  
Return Volatility ◽  
Trading Costs ◽  
Regulation Fair Disclosure ◽  
Fair Disclosure ◽  
Regulation Fd ◽  
Material Information ◽  
The Impact ◽  
Selective Disclosure

AbstractIn October 2000, the Securities and Exchange Commission (SEC) passed Regulation Fair Disclosure (FD) in an effort to reduce selective disclosure of material information by firms to analysts and other investment professionals. We find that the information asymmetry reflected in trading costs at earnings announcements has declined after Regulation FD, with the decrease more pronounced for smaller and less liquid stocks. Return volatility around mandatory announcements is also lower but overall information flow is unchanged when mandatory and voluntary announcements are combined. Thus, the SEC appears to have diminished the advantage of informed investors, without increasing volatility.

scholarly journals Institutional investors and acquisition targets

2012 ◽  
Vol 9 (3) ◽  
pp. 428-441
Author(s):  
Lily Qi ◽  
Hong Wan
Keyword(s):  
Mutual Funds ◽  
Institutional Investors ◽  
Institutional Ownership ◽  
Pension Funds ◽  
Public Pension ◽  
Turnover Rates ◽  
Regulation Fair Disclosure ◽  
High Turnover ◽  
Fair Disclosure ◽  
Selective Disclosure

Firms with higher levels of institutional ownership are more likely to be acquired. This paper shows that this positive correlation is due to ownership endogeneity. Institutional investors are better informed investors and buy acquisition targets. After controlling for this ownership endogeneity, the presence of institutional investors reduces the probability of being acquired. Our result further shows that mutual funds or funds with high turnover rates are more likely to benefit from selective disclosure prior to Regulation Fair Disclosure and the presence of public pension funds increases the announcement premiums that targets receive, which indicates a monitoring effect.

Information Asymmetry and the Bond Coupon Choice

2017 ◽  
Vol 93 (2) ◽  
pp. 37-59 ◽  
Author(s):  
Dan Amiram ◽  
Alon Kalay ◽  
Avner Kalay ◽  
N. Bugra Ozel
Keyword(s):  
Information Asymmetry ◽  
Regulation Fair Disclosure ◽  
Signaling Mechanism ◽  
Exogenous Shock ◽  
Analyst Coverage ◽  
Fair Disclosure ◽  
Efficient Contract ◽  
Prior Literature

ABSTRACT We examine the role of the coupon choice in bond contracts as a signaling mechanism in the presence of information asymmetry between borrowers and lenders about the credit quality of the borrower. Prior literature focuses on the use of maturity as a signaling mechanism. We conjecture that the coupon is a more effective signaling mechanism. We exploit the enactment of Regulation Fair Disclosure (RegFD) as an exogenous shock to the level of information asymmetry, and employ both bond- and equity market-based variables of information asymmetry to test our conjecture. We find that following the enactment of RegFD, the coupon rates of bonds issued by unrated firms increase relatively more than those of rated firms, consistent with the coupon choice addressing information asymmetry. We fail to find similar increases in maturity. Our inferences remain the same when using the probability of informed trade to measure relative changes in information asymmetry around the enactment of RegFD. We also draw similar conclusions utilizing exogenous drops in analyst coverage that result from brokerage house closures as an alternative quasi-natural experiment. Finally, we provide evidence that the coupon is used more extensively when issuance costs are higher, precisely when maturity is predicted to be a less efficient contract term with which to address information asymmetry. JEL Classifications: G10; G23; M21; M41.

Professional Investor Relations within the Firm

2014 ◽  
Vol 89 (4) ◽  
pp. 1421-1452 ◽  
Author(s):  
Marcus P. Kirk ◽  
James D. Vincent
Keyword(s):  
Control Sample ◽  
Data Availability ◽  
Regulatory Environment ◽  
Investor Relations ◽  
Regulation Fair Disclosure ◽  
Differential Impact ◽  
Analyst Following ◽  
Exogenous Shock ◽  
Fair Disclosure ◽  
Reg Fd

ABSTRACT: This paper investigates the effect of investments in internal investor relations (IR) departments on firm outcomes. We find that companies initiating internal professional IR experience increases in disclosure, analyst following, institutional investor ownership, liquidity, and market valuation relative to a matched sample of control firms. We also examine the differential impact the exogenous shock of Regulation Fair Disclosure (Reg FD) had on firms with an established professional IR department. We find these IR firms more than doubled their level of public disclosure post-Reg FD. Despite IR firms losing a potential communications channel following Reg FD adoption, we find they did not suffer adversely and instead show a post-Reg FD increase in analyst following, institutional investors, and liquidity relative to a control sample of similar non-IR firms. This implies that the effectiveness of professionalized internal IR increased post-Reg FD consistent with IR firms being relatively better positioned to navigate the more complicated regulatory environment. JEL Classifications: D82; M41; G11; G12; G14; G24 Data Availability: Data are publicly available from the sources identified in the paper with the exception of the membership data from the National Investor Relations Institute, which is a proprietary dataset.

The Influence of Disclosure Regulation on Selective Disclosure: Impact on Difficult-to-Measure Reporting Activities and the Importance of Assurance Services

2006 ◽  
Vol 6 (1) ◽  
pp. 70-94 ◽  
Author(s):  
Diane J. Janvrin ◽  
James M. Kurtenbach
Keyword(s):  
Financial Information ◽  
Corporate Disclosure ◽  
Regulation Fair Disclosure ◽  
Disclosure Regulation ◽  
The Public ◽  
Market Participants ◽  
Fair Disclosure ◽  
Phone Calls ◽  
Assurance Services ◽  
Selective Disclosure

The objective of recent disclosure regulation (e.g., Regulation Fair Disclosure [FD]) is to reduce selective disclosure, the practice of releasing financial information to selected users before publicly disclosing the information. Prior to FD, providers used narrow distribution reporting activities, such as phone calls and one-on-one meetings with analysts, reviews of analysts' earnings estimates, and analysts' contracts with suppliers and firm employees, to communicate private financial information to selected users at the expense of uninformed users. Public interest theorists view regulation as a means to protect the public. We predict that if FD is effective, providers will move away from narrow reporting activities and reduce the probability that selected users can achieve a competitive advantage over the general investing public. In addition, assuming that reducing selective disclosure increases the number of market participants receiving information, we argue that the importance of assurance services will increase since FD (1) reduces users' ability to evaluate the credibility of provider information based on personal relationships with providers, and (2) increases the pressure on provider investor relations personnel to monitor the amount and credibility of information disclosed to decrease the likelihood that market participants view the information released as unreliable. Due to the lack of available empirical data related to narrow reporting activities and the importance of assurance services, we employ a field-based questionnaire of providers and users to address these issues. Results indicate that (1) providers and users perceive that narrow distribution reporting activities still exist, and (2) reducing users' personal access to providers may increase the importance of assurance services. The study increases our understanding of how regulation to reduce selective disclosure may protect the public by examining its impact on corporate disclosure activities and policies.

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