We examine changes in the scope of the sell-side analyst industry and whether these changes impact information dissemination and the quality of analysts' reports. Our findings suggest that changes in ...the number of analysts covering an industry impact analyst competition and have significant spillover effects on other analysts' forecast accuracy, bias, report informativeness, and effort. These spillover industry effects are incremental to the effects of firm level changes in analyst coverage. Overall, a more significant sell-side analyst industry presence has positive externalities that can result in better functioning capital markets.
This study examines the relation between financial institutions’ corporate culture and the quality of analysts’ research services. Using data collected from the Financial Industry Regulatory ...Authority, I measure the weakness of financial institutions’ corporate culture based on violations observed in securities activities unrelated to equity research. I find evidence demonstrating an association between weak corporate culture and analysts’ providing research products catered to institutional clients at the expense of individual investors. Specifically, FINRA violations are associated with both (i) less accurate forecasts and less informative reports, and (ii) higher institutional commission revenues and more broker-hosted conferences for select institutional clients.
The monitoring role of social media Heese, Jonas; Pacelli, Joseph
Review of accounting studies,
06/2024, Letnik:
29, Številka:
2
Journal Article
Recenzirano
We examine whether social media activity can reduce corporate misconduct. We use the staggered introduction of 3G mobile broadband access across the United States to identify exogenous increases in ...social media activity and test whether access to 3G reduces misconduct. We find that facilities substantially reduce both violations and penalties following the introduction of 3G in a local area. To validate social media activity as the mechanism, we show that 3G access results in sharp increases in Tweet volume and that facilities located in areas with high Tweet volume misbehave less. The effect of 3G access on misconduct is stronger for facilities of more visible firms and concentrated in nonfinancial violations, such as those involving unsafe workplace conditions and inappropriate treatment of employees and customers. Overall our results demonstrate that social media plays an important role in monitoring corporate misconduct.
We examine how cultural differences among agents influence the aggregate outcome of a common forecasting task. Using both exogenous shocks to sell-side analyst diversity and panel regression methods, ...we find that increases in analyst cultural diversity positively affect the quality of the consensus earnings forecast. We further provide evidence on the potential mechanisms underlying this result by showing that cultural diversity is associated with improvements in individual analyst forecasts, greater analyst conference call participation and interaction, and greater diversity in analyst education backgrounds and professional interests. Overall, our results indicate that greater cultural differences among agents producing an aggregate forecast are associated with a higher quality consensus forecast.
•We examine how cultural differences among agents influence the aggregate outcome of a common forecasting task.•Cultural diversity is positively associated with the quality of the sell-side analyst consensus forecast.•The positive effects of cultural diversity relate to group diversification benefits and improvements in individual analyst forecast accuracy.•Cultural diversity is associated with greater analyst conference call participation and interaction, and greater diversity in analyst education backgrounds and professional interests.
ABSTRACT
We provide the first comprehensive analysis of the properties of investment recommendations generated by “Robo-Analysts,” which are human analyst-assisted computer programs conducting ...automated research analysis. Our results indicate that Robo-Analyst recommendations differ from those produced by traditional “human” research analysts across several important dimensions. First, Robo-Analysts produce a more balanced distribution of buy, hold, and sell recommendations than do human analysts and are less likely to recommend “glamour” stocks and firms with prospective investment banking business. Second, automation allows Robo-Analysts to revise their recommendations more frequently than human analysts and incorporate information from complex periodic filings. Third, while Robo-Analysts' recommendations exhibit weak short-window return reactions, they have long-term investment value. Specifically, portfolios formed based on the buy recommendations of Robo-Analysts significantly outperform those of human analysts. Overall, our results suggest that automation in the sell-side research industry can benefit investors.
JEL Classifications: G14; G24.
Credit and Punishment Gao, Janet; Kleiner, Kristoph; Pacelli, Joseph
The Review of financial studies,
12/2020, Letnik:
33, Številka:
12
Journal Article
Recenzirano
We examine whether bankers face disciplining consequences for structuring poorly performing corporate loans. We construct a novel data set containing the employment histories and loan portfolios of a ...large sample of corporate bankers and find that corporate credit events (i.e., downgrades, defaults, bankruptcies) increase banker turnover. The effect is pronounced when bankers issue loans with loose terms or experience severe losses. Credit events prompt bankers to adopt stricter future risk management practices, such as offering restrictive covenant packages. Overall, our findings are consistent with banks disciplining employees as a means to manage their own risk exposure.
We investigate the extent to which loan officers generate independent, individual effects on the design and performance of syndicated loans. We construct a large database containing the identities of ...loan officers involved in structuring syndicated loan deals, allowing us to systematically disentangle borrower, bank, and loan officer fixed effects. We find that loan officers have significant influence on interest spreads, loan covenant design, and loan performance. Inclusion of borrower fixed effects increases our power to rule out the alternative that loan officer fixed effects reflect the matching of officerds to borrowers based on time-invariant borrower characteristics. We document heterogeneity in loan officers’ influence across loan contract terms, with loan officers exerting stronger influence over covenant package design than over interest spreads, but marginal influence on loan maturity. Lead officers have greater influence than participant officers over covenant package design and loan performance, but less robust differential influence on interest spreads.
•We investigate the extent to which loan officers generate independent, individual effects on the design and performance of syndicated loans.•We construct a large database containing the identities of loan officers involved in structuring syndicated loan deals.•We find that loan officers have significant influence on interest spreads, loan covenant design, and loan performance.•Loan officers exert a stronger influence over covenant package design than over interest spreads, but marginal influence on loan maturity.•Lead officers have greater influence than participant officers over covenant package design and loan performance, but less robust differential influence on interest spreads.
We offer novel evidence on how the nature of brokerage-client relationships can influence the quality of equity research. We exploit a unique setting provided by the
Protocol for Broker Recruiting
to ...examine whether relaxed broker noncompete agreement enforcement generates spillover effects on sell-side analysts. Entry into this agreement reassigns ownership of the client relationship from the brokerage to individual brokers, potentially generating a greater standard of care. Using a generalized difference-in-differences research design, we provide evidence consistent with brokers reducing pressure on analysts to produce optimistic research following protocol entry. This effect is concentrated among less experienced and non-All Star analysts, who previously may have faced the greatest pressures to sacrifice objectivity. Additionally, we find that analysts issue more accurate forecasts and generate reports with heightened market reactions following protocol entry. Our collective evidence sheds new light on how the nature of brokerage relationships can influence analysts’ research production.
ABSTRACT
In this study, we examine whether firms respond to internal control weaknesses (ICWs) by requiring accounting-specific skills when hiring rank-and-file employees. Using unique data ...containing an extensive collection of job postings, we document significant increases in firms’ job postings that list accounting skills after the disclosure of an ICW. This effect is more pronounced for firms with better financial resources and when ICWs are more severe or personnel-related. In addition, our results extend to employees that are not specifically designated as accountants, suggesting a broader role for rank-and-file employees in influencing internal control quality. Finally, we find that increases in job postings with accounting skill requirements are associated with improvements in internal controls and a higher likelihood of ICW remediation. Overall, our findings shed new light on how firms respond to ineffective internal controls by increasing their emphasis on accounting skills in their workforce.
Data Availability: Data are publicly available from the sources identified in the text.
JEL Classifications: G30; J23; M41; M42.
Crypto-influencers Merkley, Kenneth J.; Pacelli, Joseph; Piorkowski, Mark ...
Review of accounting studies,
09/2024, Letnik:
29, Številka:
3
Journal Article
Recenzirano
Odprti dostop
This study examines the investment value of information provided by crypto-influencers, that is, social media influencers covering crypto assets on Twitter. We examine the returns associated with ...approximately 36,000 tweets issued by 180 of the most prominent crypto social media influencers covering over 1,600 crypto assets for the two years spanning through December 2022. Our primary results indicate that crypto-influencers’ tweets are initially associated with positive returns. However, these tweets are followed by significant negative longer-horizon returns, suggesting they generate minimal long-term investment value. These effects are most pronounced for tweets issued by crypto-influencers proclaiming to be crypto experts, for smaller cap crypto asset securities and for self-described experts with many Twitter followers. In an additional analysis, we use machine-learning methods to classify tweets and find that this pattern of results strengthens when the tweets have a more positive sentiment or relate to buy recommendations.
