Essays on financial analysts and broker-hosted conferences

This thesis consists of three chapters that explore sell-side analysts’ attribute, the new regulation on them, and the research service provided by them on the capital market. Chapter 1 (co-authored with Peter Pope and Ane Tamayo) studies the impact on sell-side analysts and the stock market of separating research payments from dealing commissions. We exploit an exogenous shock to sell-side analysts’ research income in Sweden, caused by several of Sweden’s largest asset managers’ adoption of the unbundling model (the RPA model) to pay for the equity research purchased from the sell-side. Using a hand-collected dataset revealing analyst location, we find that the introduction of the RPA model coincides with a reduction in the supply of sell-side research services. The RPA model is associated with a reduction in analysts’ coverage lists, with some firms losing analyst coverage. This reduction is greater for firms with lower institutional ownership and with lower market value of equity, as well as firms that are not in the Benchmark index. Moreover, we find that, after controlling for changes in analyst coverage, the adoption of the RPA model is associated with an overall improvement in analysts’ research quality, as evidenced by superior earnings forecast ability in the post adoption period. Lastly, we find that the market reacts more strongly to forecast revisions in the post RPA adoption. Overall, our results suggest that unbundling research payment is associated with an improvement in the information environment for firms with analyst coverage, but some firms suffer a loss of analyst coverage. In Chapter 2 (co-authored with Peter Pope and Ane Tamayo), we investigate the effects of broker-hosted credit conferences on the corporate bond market. We find that firms with a greater probability of financial distress, more public debt, and lower timeto-maturity of bonds are more likely to attend credit conferences. Next, we find that the bond market mainly reacts to credit conferences, rather than non-credit conferences. In addition, we document a greater market reaction to credit conferences when bonds have speculative grade credit rating and short time-to-maturity. Furthermore, we find that firms attending credit conferences experience a reduction in the cost of debt in the subsequent months. Lastly, we document an increase in institutional investor ownership of bonds after the credit conference participation; this increase is mainly attributable to mutual fund investors. None of these results hold for non-credit conferences. Finally, in Chapter 3 (solo-authored), I investigate the role of analysts’ educational backgrounds in the analysis of R&D intensive firms within the chemical manufacturing industry. Firms’ technological complexity has a negative impact upon analysts’ behavior. Using R&D intensity as a proxy of technological complexity, and hand-collected data of analysts’ educational degrees, I find that analysts with a matching technological degree cover less industries, and firms’ analyst following by analysts with (without) a matching degree is positively (negatively) associated with firms’ R&D intensity. Furthermore, I find that a matching technological degree that an analyst holds ameliorates the negative impact of the R&D intensity on analysts’ forecast accuracy. Next, I find that the market reactions to upward recommendations revised by matching analysts are greater than that revised by non-matching analysts. Lastly, when restricting the sample to the group of pharmaceutical firms, I find a negative association between analysts’ boldness and firms’ R&D intensity; but when analysts have matching technological degrees this alleviates the negative association