Implications of Buy Side Analyst Earnings Conference Call Participation

Transcription

1 Implications of Buy Side Analyst Earnings Conference Call Participation American Accounting Association Annual Meeting Chicago, IL Tom Shohfi, CFA August 11 th, 2015

2 Motivation How Frequently and for Which Types of Firm s Earnings Calls do Buy Side Analyst Participate? What Types of Buy Side & Independent Institutions Appear on Earnings Calls? Do Buy Side Analysts Receive Differing Treatment from Managers on Calls? Why do Buy Side Analysts Risk Possible Public Dissemination of Private Information? 1/15

3 Buy Side Analyst Literature Proprietary Buy Side Firm Data o Groysberg, et al. (2008), Rebello and Wei (2014) BSA Participation on Conference Calls: Cen, Dasgupta, and Ragunathan (2011) Independence: Barber, et al. (2007) Useful Public Information?: Kacperczyk and Seru (2007), Solomon and Soltes (2015) Hedge Funds & Information Production 2/15

4 Taxonomy Process (Figure 1) Sell Side: Investment Banking Services Independent: (Non-)Brokerage Firms Buy Side: Hedge Funds, Mutual Funds, Registered Investment Advisors, etc. Limitations: Complex Institutions, Text Exhaustive List of Firms by Classification o Available at 3/15

5 Taxonomy Example: Prudential Prior to December 2000: Sell Side o See Phasing Out Investment Banking Unit (NYT) From December 2000 to June 2007: Independent Research with Brokerage o See Equity Research: What s Next? (BW) After June 2007: Buy Side with Insurance Sub-Classification 4/15

6 Conference Call Example (Figure 2) 5/15

7 Data Processing Perl: RTF Extraction MySQL DB o Data Sources and File Format Consistency o Manual ID Verification Sometimes Needed SoundEx ( o Iterate through Substring Match Lengths o Snae (2007): Outperforms Levenshtein o Enhancements: Phonex, Metaphone, etc. 6/15

8 Data 30,575 (29,060 with Non-Management Participants) Earnings Conference Call Transcripts via Capital IQ o S&P 500 Firms, Half of Russell ,106 Extracted Participants o 93.19% Classified: IBES, Thomson S12/S34 o Proprietary Hedge Fund Data (Ellis) 7/15

9 Participation Frequencies (Table 1) Research Institution Name Primary Type Secondary Type Total Appearances Matched Patterns Adage Capital Management buyside Hedge Fund Catapult Capital Management LLC buyside Hedge Fund Lord, Abbett & Co. LLC buyside Mutual Fund SAC Capital Advisors buyside Hedge Fund Columbia Management Group LLC buyside Mutual Fund Sanford C. Bernstein & Co., LLC independent Brokerage Sidoti & Company, LLC independent Research Sales Longbow Research independent Brokerage Buckingham Research Group, Inc. independent Brokerage International Strategy & Investment Group independent Brokerage J.P. Morgan Chase sellside Bulge Bracket Goldman Sachs sellside Bulge Bracket Bank of America sellside Bulge Bracket Citigroup Global sellside Bulge Bracket Credit Suisse Group sellside Bulge Bracket /15

10 Large Fund Family Participation 9/15 AUM 2013 (Billion $USD) Appearances ( ) Vanguard $1,627 3 Fidelity $ American Funds $953 3 PIMCO $573 5 Franklin Templeton $398 9 T. Rowe Price $ JP Morgan $184 Dimensional Fund Advisors $173 0 OppenheimerFunds $166 4 BlackRock $ Total $5, AUM via Morningstar (

11 Participation Distribution (Table 4) (1) (2) (3) (5) (5) (3) # of Calls with Type % of Calls with Type % of Analyst Type on Call % of Calls with 1st Question Difference (Discrimination) Sell Side 28, % 81.04% 76.36% 4.68% **** Bulge Bracket 21, % 36.96% 30.63% 6.32% **** Sector Specialty 5, % 2.78% 2.74% 0.05% Other 27, % 41.30% 42.99% 1.68% **** Independent 14, % 9.01% 10.41% 1.40% *** Brokerage 10, % 5.89% 6.67% 0.78% ** Other 6, % 3.12% 3.74% 0.62% ** Buy Side 4, % 2.77% 4.03% 1.26% **** Hedge Fund 2, % 1.27% 1.69% 0.43% ** Mutual Fund 1, % 0.65% 0.79% 0.15% RIA 1, % 0.62% 1.28% 0.66% **** Other % 0.23% 0.26% 0.03% Media % 0.08% 0.05% 0.03% 10/15

12 Participation Determinants (Table 6) (4) (5) (6) (7) Any Buy Side Hedge Fund Mutual Fund RIA S&P 1500 Member * ** (0.0152) (0.0200) (0.0237) (0.0288) Ln(Market Value) *** (0.0061) (0.0078) (0.0079) (0.0115) Relative Bid Ask Spread *** ** (2.4066) (4.4034) (5.6435) (4.9896) (6.9880) ROA * *** ** (0.0767) (0.0924) (0.0828) (0.1194) Dividend Yield ** * (0.3851) (0.5303) (0.5688) (0.7684) Number of Forecasts **** **** **** **** (0.0013) (0.0019) (0.0017) (0.0023) Forecast Error ** * (0.0010) (0.0013) (0.0015) (0.0017) N 21,913 21,913 21,913 21,913 Industry FE Yes (SIC3) Yes (SIC2) Yes (SIC2) Yes (SIC2) Year Quarter FE Yes Yes Yes Yes Log Likelihood 5,060 3,588 2,716 2,393 Pseudo R /15

13 Participation Implications (Table 7) 12/15 (2) (4) (6) (10) ( 1,+1) 4 F F VW (+2,+10) PEAD Δ Equity Bid Ask CAR CAR Spread Δ Short Interest % % Hedge Fund Analysts (0.0102) (0.0097) (0.0001) (0.0009) % Mutual Fund Analysts ** (0.0176) (0.0127) (0.0002) (0.0014) % RIA Analysts * * * (0.0150) (0.0144) (0.0002) (0.0011) % Other Buy Side Analysts * (0.0328) (0.0218) (0.0003) (0.0021) % Independents (Brokerage) (0.0077) (0.0068) (0.0001) (0.0007) % Independents (Non Brokerage) * (0.0064) (0.0058) (0.0001) (0.0006) Intercept *** ** (0.0228) (0.0154) (0.0002) (0.0019) Number of Observations 26,583 26,583 26,583 26,583 Additional Controls Yes Yes Yes Yes Firm Fixed Effects Yes Yes Yes Yes Year Quarter Fixed Effects Yes Yes Yes Yes Adjusted R

14 Individual Institutions (Table 8) 13/15 OLS: Tobit: Logit: Δ Institution Holdings % Δ Institution Holdings % New Position (2) (3) (5) (6) (8) (9) Conference Call Appearance * *** (0.0464) (0.0985) (0.1936) Question Priority * *** (0.0881) (0.1823) (0.2884) Number of Forecasts *** *** ** ** (0.0009) (0.0009) (0.0009) (0.0009) (0.0013) (0.0013) Ln(Length of Q&A+1) ** ** ** ** (0.0023) (0.0023) (0.0027) (0.0027) (0.0034) (0.0034) ( 1,+1) 4 F F VW CAR *** *** *** *** (0.0709) (0.0709) (0.0678) (0.0678) (0.0881) (0.0880) Intercept **** **** **** **** (0.1770) (0.1770) (0.1841) (0.1841) (0.2579) (0.2579) N 1,462,334 1,462,334 1,322,500 1,322,500 1,510,969 1,510,969 Firm Fixed Effects Yes Yes No No No No Additional Firm Controls No No Yes Yes Yes Yes Firm Industry Fixed Effects No No Yes (SIC3) Yes (SIC3) Yes (SIC3) Yes (SIC3) Institution Fixed Effects Yes Yes No No No No Year Quarter Fixed Effects Yes Yes Yes Yes Yes Yes Adjusted R 2 / Pseudo R

15 What s Next? Textual Analysis by Analyst Type: Predictive Power for Corporate Activities Ross Stores, Inc. (ROST) on 8/16/ /15

16 Conclusions Buy Side (Hedge Fund) Analysts Appear on 15% ( 7.5%) of Earnings Calls Little Participation from Large Mutual Funds BSAs Receive Preferential Treatment on Calls BSAs More Frequently Appear on Calls of Firms with Higher Dividends, Non-Index, Low Liquidity, Less Sell Side Coverage No Hand Tipping in Participation 15/15