Implications of Buy Side Analyst Earnings Conference Call Participation American Accounting Association Annual Meeting Chicago, IL Tom Shohfi, CFA August 11 th, 2015
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
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
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 http://shohfi.com/buyside 3/15
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
Conference Call Example (Figure 2) 5/15
Data Processing Perl: RTF Extraction MySQL DB o Data Sources and File Format Consistency o Manual ID Verification Sometimes Needed SoundEx (http://1.usa.gov/1x1rhli) o Iterate through Substring Match Lengths o Snae (2007): Outperforms Levenshtein o Enhancements: Phonex, Metaphone, etc. 6/15
Data 30,575 (29,060 with Non-Management Participants) Earnings Conference Call Transcripts via Capital IQ o S&P 500 Firms, Half of Russell 3000 230,106 Extracted Participants o 93.19% Classified: IBES, Thomson S12/S34 o Proprietary Hedge Fund Data (Ellis) 7/15
Participation Frequencies (Table 1) Research Institution Name Primary Type Secondary Type Total Appearances Matched Patterns Adage Capital Management buyside Hedge Fund 138 4 Catapult Capital Management LLC buyside Hedge Fund 123 7 Lord, Abbett & Co. LLC buyside Mutual Fund 112 12 SAC Capital Advisors buyside Hedge Fund 111 6 Columbia Management Group LLC buyside Mutual Fund 101 12 Sanford C. Bernstein & Co., LLC independent Brokerage 2875 41 Sidoti & Company, LLC independent Research Sales 2771 21 Longbow Research independent Brokerage 1424 8 Buckingham Research Group, Inc. independent Brokerage 1399 11 International Strategy & Investment Group independent Brokerage 1210 5 J.P. Morgan Chase sellside Bulge Bracket 10900 66 Goldman Sachs sellside Bulge Bracket 9598 29 Bank of America sellside Bulge Bracket 8834 66 Citigroup Global sellside Bulge Bracket 8279 43 Credit Suisse Group sellside Bulge Bracket 7994 25 8/15
Large Fund Family Participation 9/15 AUM 2013 (Billion $USD) Appearances (2006 2013) Vanguard $1,627 3 Fidelity $987 33 American Funds $953 3 PIMCO $573 5 Franklin Templeton $398 9 T. Rowe Price $344 13 JP Morgan $184 Dimensional Fund Advisors $173 0 OppenheimerFunds $166 4 BlackRock $163 28 Total $5,384 98 AUM via Morningstar (http://corporate.morningstar.com/us/documents/fundflows/janflows13.pdf)
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 28,272 92.47% 81.04% 76.36% 4.68% **** Bulge Bracket 21,809 71.33% 36.96% 30.63% 6.32% **** Sector Specialty 5,251 17.17% 2.78% 2.74% 0.05% Other 27,182 88.90% 41.30% 42.99% 1.68% **** Independent 14,070 46.02% 9.01% 10.41% 1.40% *** Brokerage 10,434 34.13% 5.89% 6.67% 0.78% ** Other 6,369 20.83% 3.12% 3.74% 0.62% ** Buy Side 4,707 15.39% 2.77% 4.03% 1.26% **** Hedge Fund 2,375 7.77% 1.27% 1.69% 0.43% ** Mutual Fund 1,380 4.51% 0.65% 0.79% 0.15% RIA 1,310 4.28% 0.62% 1.28% 0.66% **** Other 514 1.68% 0.23% 0.26% 0.03% Media 68 0.22% 0.08% 0.05% 0.03% 10/15
Participation Determinants (Table 6) (4) (5) (6) (7) Any Buy Side Hedge Fund Mutual Fund RIA S&P 1500 Member 0.0291* 0.0444** 0.0187 0.0154 (0.0152) (0.0200) (0.0237) (0.0288) Ln(Market Value) 0.0069 0.0002 0.0006 0.0301*** (0.0061) (0.0078) (0.0079) (0.0115) Relative Bid Ask Spread 12.8569*** 12.9113** (2.4066) 1.1665 (4.4034) (5.6435) (4.9896) (6.9880) ROA 0.1463* 0.0466 0.2339*** 0.2369** (0.0767) (0.0924) (0.0828) (0.1194) Dividend Yield 0.8288** 0.9966* 0.6978 0.7706 (0.3851) (0.5303) (0.5688) (0.7684) Number of Forecasts 0.0110**** 0.0115**** 0.0096**** 0.0125**** (0.0013) (0.0019) (0.0017) (0.0023) Forecast Error 2 0.0022** 0.0012 0.0020 0.0033* (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 2 0.2760 0.2256 0.1446 0.1765 11/15
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 0.0046 0.0098 0.0001 0.0009 (0.0102) (0.0097) (0.0001) (0.0009) % Mutual Fund Analysts 0.0353** 0.0067 0.0024 0.0004 (0.0176) (0.0127) (0.0002) (0.0014) % RIA Analysts 0.0127 0.0238* 0.0004* 0.0020* (0.0150) (0.0144) (0.0002) (0.0011) % Other Buy Side Analysts 0.0038 0.0326 0.0005* 0.0003 (0.0328) (0.0218) (0.0003) (0.0021) % Independents (Brokerage) 0.0108 0.0002 0.0000 0.0008 (0.0077) (0.0068) (0.0001) (0.0007) % Independents (Non Brokerage) 0.0062 0.0080 0.0000 0.0011* (0.0064) (0.0058) (0.0001) (0.0006) Intercept 0.0786*** 0.0338** 0.0001 0.0001 (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 2 0.0170 0.0220 0.0540 0.0320
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 0.0326 0.1776* 0.5697*** (0.0464) (0.0985) (0.1936) Question Priority 0.0552 0.3162* 0.7927*** (0.0881) (0.1823) (0.2884) Number of Forecasts 0.0025*** 0.0025*** 0.0018** 0.0018** 0.0006 0.0006 (0.0009) (0.0009) (0.0009) (0.0009) (0.0013) (0.0013) Ln(Length of Q&A+1) 0.0047** 0.0047** 0.0061** 0.0061** 0.0024 0.0023 (0.0023) (0.0023) (0.0027) (0.0027) (0.0034) (0.0034) ( 1,+1) 4 F F VW CAR 0.2714*** 0.2714*** 0.0222 0.0222 0.2585*** 0.2585*** (0.0709) (0.0709) (0.0678) (0.0678) (0.0881) (0.0880) Intercept 1.2827**** 1.2826**** 0.0836 0.0834 1.1774**** 1.1774**** (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 2 0.0310 0.0310 0.0012 0.0012 0.0194 0.0194
What s Next? Textual Analysis by Analyst Type: Predictive Power for Corporate Activities Ross Stores, Inc. (ROST) on 8/16/2006 14/15
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