Security Analysis, Agency Costs, and UK Firm Characteristics

This paper assesses the monitoring power of security analysts from the manager-shareholder conflict perspective. Using a sample of UK firms tracked by security analysts, our evidence supports the view that security analysis acts as a monitoring mechanism in reducing agency costs. We also find that security analysts are more effective in reducing agency costs for smaller and more focused firms rather than larger and more diversified firms suggesting that for larger and more complex firms security analysis is less effective. The UK findings suggest that the monitoring role of security analysts is not restricted to the U.S. capital market environment.

Proton Quest: A Biotech Group

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Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: a panel data analysis.

This paper examines the impact of governance and ownership variables on agency costs for a panel of large UK quoted companies. We use three measures of agency costs: the ratio of sales-to-total assets, the interaction of free cash flows and growth prospects and the number of acquisitions. We employ a range of techniques to analyse the data: fixed-effects, instrumental variables, and Tobit regressions. We find that the changes in board structures that have occurred in the post-Cadbury period have not, generally, affected agency costs. This suggests a range of mechanisms is consistent with firm value maximisation. We also find that having a nomination committee increases agency costs, which indicates that there are costs associated with certain governance mechanisms. Increasing board ownership also helps to reduce agency costs. We also find that debt reduces agency costs. Our results raise questions about the usefulness of the information sent to shareholders when firms adopt a recommended governance framework

Forecast bias and analyst independence

This paper examines the accuracy of equity analysts who provide earnings forecasts for European companies. We find strong evidence of institutional bias in analysts’ forecasts, specifically, when analysts move between sell-side employers and independent employers, they issue more accurate forecasts while they are employed by independent firms. Moreover, these differences persist when we hold constant the set of firms these mobile analysts research. We find statistically significant differences in the forecast accuracy of sell-side and independent analysts. The optimistic bias of sell-side analysts appears to be related to underwriting activity. Analysts employed by lead underwriters produce less accurate forecasts for newly public companies than do either buy-side or independent analysts. The optimistic bias persists for a five-year period following an IPO.peer-reviewe

Underwriting relationships and analyst independence in Europe.

This paper examines the accuracy of security analysts' earnings forecasts and stock recommendations for firms in 13 European countries. We document at least three key findings. First, we find strong evidence that lead and co-lead underwriter analysts' earnings estimates and stock recommendations are significantly more optimistic than those provided by unaffiliated analysts. Second, we find that lead and co-lead underwriter analysts' earnings forecast and stock recommendations are significantly more optimistic for underwriter stocks than for those they provide for other stocks. Third, we also find evidence that these biases found within earnings forecasts and stock recommendations are not driven by one particular country. In short, these findings suggest that affiliated analysts are more optimistic perhaps to maintain investment banking relations

Returns to buying upward revision and selling downward revision stocks: evidence from Canada.

Purpose: The purpose of this paper is to investigate the role of earnings forecast revisions by equity analysts in predicting Canadian stock returns Design/methodology/approach: The sample covers 420 Canadian firms over the period 1998-2009. It analyses investors’ reactions to 27,271 upward revisions and 32,005 downward revisions of analysts’ forecasts for Canadian quoted companies. To test whether analysts’ earnings forecast revisions affect stock return continuation, forecast revision portfolios similar to Jegadeesh and Titman (2001) are constructed. The paper analyses the returns gained from a trading strategy based on buying the strong upward revisions portfolio and short selling the strong downward revisions portfolio. It also separates the sample into upward and downward revisions. Findings: The authors find that new information in the form of analyst forecast revisions is not impounded efficiently into stock prices. Significant returns persist for a trading strategy that buys stocks with recent upward revisions and short sells stocks with recent downward revisions. Good news is impounded into stock prices more slowly than bad news. Post-earnings forecast revisions drift is negatively related to analyst coverage. The effect is strongest for stocks with greatest number of upward revisions. The introduction of the better disclosure standards has made the Canadian stock market more efficient. Originality/value: The paper adds to the limited evidence on the effect of analyst forecast revisions on the returns of Canadian stocks. It sheds light on the importance of analysts’ earnings forecast information and offers support for the investor conservatism and information diffusion hypotheses. It also shows how policy can improve market efficiency

Public Policy, Health Insurance and the Transition to Adulthood

This paper assesses the impact of two recent policies designed to increase insurance coverage for older teens and young adults. The introduction of SCHIP in 1997 enabled low and moderate income teens up to age 19 to gain access to public health insurance. More recent policies adopted by a number of states have enabled young adults between the ages of 19 and (typically) 24 to remain covered under their parents’ health insurance. We take advantage of the discrete break in coverage at age 19 to evaluate the impact of SCHIP. We also use quasi-experimental variation across states and years along with the targeted nature of eligibility to evaluate the impact of these “extended parental coverage” laws. Our results suggest that both types of policies were effective at increasing health insurance coverage, especially among their respective target populations. Overall, SCHIP increases insurance coverage by 3 percentage points; those with incomes under 150 percent of poverty are found to experience a 7 percentage point increase. We find little evidence of crowd-out associated with the introduction of SCHIP. Extended parental coverage laws have minimal aggregate effects on coverage, but they increase coverage by up to 5 percentage points for select groups. These laws may generate reverse crowd-out, as individuals leave public insurance coverage to take advantage of the private coverage now available to them.

The impacts of stock characteristics and regulatory change on mutual fund herding in Taiwan.

This article analyses the trading activity of Taiwanese open-end equity mutual fund herding behaviour over the period of 1996-2008. We found evidence of both directional and directionless herding. We also found that sell-side fund herding leads to price stabilization, whereas buy-side herding results in prices adjusting slowly. We found that the abolition of qualified foreign institutional investor (QFII) has reduced directionless and sell-side herding but has had no effect on buy-side herding

The Cadbury code reforms and corporate performance.

This paper investigates the impact of adopting the Cadbury Committee's Code of Best Practices on the corporate performance of UK firms. The findings show improved corporate performance by companies which adopted the Code. Regarding the specific recommendations of the Code, splitting the positions of the Chairman of the Board and CEO does not result in improved corporate performance. The establishment of an internal audit and/or remuneration committee is positively associated with corporate performance, while the presence of a key executive director in such committees is negatively associated with corporate performance. There is a negative relation between corporate performance and the proportion of non-executive directors, but a positive relation between corporate performance and the square of the proportion of non-executive directors

Press accept to update now: Individual differences in susceptibility to malevolent interruptions

© 2017 The Authors Increasingly, connected communication technologies have resulted in people being exposed to fraudulent communications by scammers and hackers attempting to gain access to computer systems for malicious purposes. Common influence techniques, such as mimicking authority figures or instilling a sense of urgency, are used to persuade people to respond to malevolent messages by, for example, accepting urgent updates. An ‘accept’ response to a malevolent influence message can result in severe negative consequences for the user and for others, including the organisations they work for. This paper undertakes exploratory research to examine individual differences in susceptibility to fraudulent computer messages when they masquerade as interruptions during a demanding memory recall primary task compared to when they are presented in a post-task phase. A mixed-methods approach was adopted to examine when and why people choose to accept or decline three types of interrupting computer update message (genuine, mimicked, and low authority) and the relative impact of such interruptions on performance of a serial recall memory primary task. Results suggest that fraudulent communications are more likely to be accepted by users when they interrupt a demanding memory-based primary task, that this relationship is impacted by the content of the fraudulent message, and that influence techniques used in fraudulent communications can over-ride authenticity cues when individuals decide to accept an update message. Implications for theories, such as the recently proposed Suspicion, Cognition and Automaticity Model and the Integrated Information Processing Model of Phishing Susceptibility, are discussed