Non‐Deal Roadshows, Informed Trading, and Analyst Conflicts of Interest

Abstract

Non-deal roadshows (NDRs) are private meetings between management and institutional investors, typically organized by sell-side analysts. We find that around NDRs, local institutional investors trade heavily and profitably, while retail trading is significantly less informed. Analysts who sponsor NDRs issue significantly more optimistic recommendations and target prices, together with more "beatable" earnings forecasts, consistent with analysts issuing strategically biased forecasts to win NDR business. Our results suggest that NDRs result in a substantial information advantage for institutional investors and create significant conflicts of interests for the analysts who organize them.THE 2000 REGULATION FAIR DISCLOSURE ("Reg FD") and the 2003 Global Analyst Research Settlement ("Global Settlement") are two of the most significant regulatory actions designed to protect retail investors in the past few decades. Reg FD was introduced to level the information playing field for retail investors by prohibiting the disclosure of nonpublic, material information to selected parties, and the Global Settlement was designed to reduce the conflicts of interest that arise when financial institutions engage in both investment banking activities and equity research. Existing evidence suggests that these regulations have been at least somewhat successful in achieving their stated

Blockholder mutual fund participation in private in‐house meetings

“…This is partially because data on private interactions between firm managers and institutional investors are rarely observable. Studies have used a variety of public sources to gather data on interactions between management and investors and analysts, including conference calls (e.g., Bushee et al, 2003Bushee et al, , 2004, conference presentations (e.g., Bushee et al, 2011Bushee et al, , 2017Green et al, 2014aGreen et al, , 2014b, analyst/investor days (Kirk & Markov, 2016), and nondeal roadshows (Bradley et al, 2022;Ellis et al, 2022). Although these studies make significant contributions to understanding how institutional investors and various market participants benefit from interactions with firm management, only Solomon and Soltes (2015) and Bushee et al (2018) directly address the consequences of private meetings in a US setting.…”

Do buy‐side analysts inform sell‐side analyst research?

“…Such analysts could also issue more accurate forecasts. We employ analyst participation in corporate information events such as investor conferences, conference calls, analyst/investor days and non‐deal roadshows (Bradley et al, 2022; Bushee et al, 2011; Frankel et al, 1999; Kirk & Markov, 2016) to proxy for sell‐side analyst effort to acquire information from sources other than their interactions with buy‐side analysts. Cen et al (2021) and Mayew et al (2013) find that analysts participating in conference calls publish more accurate earnings forecasts than other analysts.…”

“…We thus collect data since 2005. It does not include non-deal roadshows Bradley et al (2022). collect this information from thefl yonth ewall.com for 2013 and later years, which we do not have access to.…”