We examine the effect of MiFID II, which mandated the unbundling and separate pricing of analyst research in Europe beginning in 2018. We find that the requirements of MiFID II were associated with a reduction in analyst following for European firms relative to US firms, with decreases in coverage greatest for firms that were larger, older and less volatile, and had greater coverage and more accurate consensus forecasts. Remaining analysts follow fewer firms and issue fewer forecasts, consistent with increased focus, and appear to increase their efforts on the firms they continue to cover. In particular, forecasts become more accurate, are more likely to be disaggregated and include recommendations, and are accompanied by larger stock price reactions. Consistent with increased effort to curry favor with management, analysts issue more optimistic recommendations and beatable earnings forecasts. While individual forecasts are more informative, the overall information environment for the average firm tends to deteriorate, with less aggregate information conveyed by analyst forecasts, a greater proportion of information delayed to earnings announcements and higher average bid-ask spreads. Taken as a whole, results are consistent with a reduction in analyst following mitigated by an increase in focus and effort by remaining analysts, but with an overall negative effect on the information environment.

No abstract

No abstract

I exploit the international, staggered adoption of takeover laws in order to examine the effect of increased turnover sensitivity to performance on managers' financial reporting choices. Using a difference-indifference design, I find that the enactment of laws designed to promote takeover activity is associated with greater earnings management (abnormally high accruals, small positive earnings, discretionary earnings smoothing and poor accruals quality) and greater opacity (reduced analyst forecast accuracy and following and greater forecast dispersion). This is consistent with managers responding to increased risk of termination by distorting earnings information. As predicted, results are particularly pronounced for managers with the highest ex ante risk of termination and at firms with poor performance. The effects are mitigated in countries in which strong institutions limit the CEOs' ability to manage earnings and create opacity. Overall, my results suggest that reforms aimed at enhancing governance through higher turnover sensitivity to performance encourage earnings management and opacity by increasing job security concerns.

No abstract