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Sweet escapes: analysts’ recommendations and the lockup period

Auteurs : MARTIN Jens (Swiss Finance Institute, University of Lugano)

Intervenants : MARTIN Jens (Swiss Finance Institute, University of Lugano)

The end of the lockup period of initial public offerings constitutes in general the first time corporate insiders sell significant numbers of shares on the market. I test the hypothesis that selling shareholders pressure analysts to support the share price until the end of the lockup period. In a sample of U.S. initial public offerings from 1996 up to 2006 I find that analysts issue too optimistic recommendations up to the end of the lockup period. I find a significant downward revision of recommendations for the whole sample of firms as soon as the lockup period ends. The market takes this analyst behavior partly into account.

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On the use of financial and extra-financial information

Auteurs : BIHR Marie-Hélène (CERAG Université Pierre Mendès France)

Intervenants : BIHR Marie-Hélène (CERAG Université Pierre Mendès France)

The goal of this work is to shed light on whether there are any differences in the financial characteristics of Socially Responsible (SR) and Non Socially Responsible (NSR) firms. We base our work on the use of extra-financial ratings provided by two of the most renowned extra-financial rating agencies: KLD for US and Vigeo for European firms. From a theoretical point of view, we look at the use and the link between financial and extra-financial information. The managerial implication is to explore the possibility of indicating whether a firm belongs to one group (SR) or another (NSR) according to financial characteristics. This would offer investors, who do not have access to specific non-financial ratings, a tool for accessing levels of Corporate Social Responsibility.

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Regulating the financial analysis industry: is the european directive effective?

Auteurs : DUBOIS Michel (University of Neuchâtel); DUMONTIER Pascal (University of Geneva)

Intervenants : DUBOIS Michel (University of Neuchâtel)

Recent years have witnessed the adoption of new laws regulating the financial analyst profession in the US. The EU followed by passing the Market Abuse Directive and two subsequent Directives in 2003. Were these Directives necessary and did they reach their target? We first analyze whether analysts changed the distribution of the recommendations levels. Then, we examine how the stock price impact of recommendations changed after the directives were passed. Finally, we check whether the EU regulation was useful given the anteriority of the US regulation. We use recommendations issued on firms of thirteen European countries from 1997 to 2007. We find that favourable recommendations significantly decreased and, to a lesser extend, that the proportion of “Sell” recommendations increased after MAD was passed. MAD did not completely eliminate optimistic recommendations issued by financial institutions facing conflicts of interest. We confirm that financial institutions with a reputation capital at stake are less prone to optimism. Due to differences in investor’s protection, we document that CARs were different across countries before MAD and that the market reaction was stronger for upgrades and positive initiations afterwards. Conflicts of interest did not affect significantly cumulated abnormal returns around “Upgrades” and positive initiations, either pre-MAD or post-MAD. Conversely, “Downgrades” issued by analysts facing conflicts of interest generate more negative abnormal returns either pre-MAD or post-MAD. Considered together, these results suggest that investors were able to discount optimistic recommendations. We also find that reputation act as a factor moderating conflicts of interest either before or after MAD. Finally, the proportion of positive (negative) recommendations issued on European firms decreased (increased) after the US laws were passed. However, cumulated abnormal returns did not change until MAD was adopted.

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