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Sell Side School Ties (2008)
| Citations: | 16 - 4 self |
BibTeX
@MISC{Cohen08sellside,
author = {Lauren Cohen and Andrea Frazzini and Christopher Malloy},
title = {Sell Side School Ties},
year = {2008}
}
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Abstract
We study the impact of social networks on agents’ ability to gather superior information about firms. Exploiting novel data on the educational backgrounds of sell side equity analysts and senior officers of firms, we test the hypothesis that analysts’ school ties to senior officers impart comparative information advantages in the production of analyst research. We find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 6.60 % per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 9.36 % per year, while post-Reg FD the return premium is nearly zero and insignificant. In contrast, in an environment that did not change selective disclosure regulation (the UK), the analyst school-tie premium has remained large and significant over the entire sample period.
Keyphrases
sell side school tie senior officer school tie return premium post-reg fd agent ability selective disclosure social network direct access regulation fd analyst school-tie premium educational background comparative information advantage sell side equity analyst pre-reg fd superior information simple portfolio strategy senior management selective disclosure regulation entire sample period stock recommendation analyst school tie large effect educational link buy recommendation analyst research novel data short buy recommendation
