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Responding to the allegedly biased research reports issued by large investment banks, the Global Research Analyst Settlement and related regulations went to great lengths to weaken the conflicts of interest faced by investment bank analysts. In this paper, I investigate the effects of these changes on small and large investor

Responding to the allegedly biased research reports issued by large investment banks, the Global Research Analyst Settlement and related regulations went to great lengths to weaken the conflicts of interest faced by investment bank analysts. In this paper, I investigate the effects of these changes on small and large investor confidence and on trading profitability. Specifically, I examine abnormal trading volumes generated by small and large investors in response to security analyst recommendations and the resulting abnormal market returns generated. I find an overall increase in investor confidence in the post-regulation period relative to the pre-regulation period consistent with a reduction in existing conflicts of interest. The change in confidence observed is particularly striking for small traders. I also find that small trader profitability has increased in the post-regulation period relative to the pre-regulation period whereas that for large traders has decreased. These results are consistent with the Securities and Exchange Commission's primary mission to protect small investors and maintain the integrity of the securities markets.
ContributorsDong, Xiaobo (Author) / Mikhail, Michael (Thesis advisor) / Hwang, Yuhchang (Committee member) / Hugon, Artur J (Committee member) / Arizona State University (Publisher)
Created2011
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Description
Managers’ control over the timing and content of information disclosure represents a significant strategic tool which they can use at their discretion. However, extant theoretical perspectives offer incongruent arguments and incompatible predictions about when and why managers would release inside information about their firms. More specifically, agency theory and

Managers’ control over the timing and content of information disclosure represents a significant strategic tool which they can use at their discretion. However, extant theoretical perspectives offer incongruent arguments and incompatible predictions about when and why managers would release inside information about their firms. More specifically, agency theory and theories within competitive dynamics provide competing hypotheses about when and why managers would disclose inside information about their firms. In this study, I highlight how voluntary disclosure theory may help to coalesce these two theoretical perspectives. Voluntary disclosure theory predicts that managers will release inside information when managers perceive that the benefits outweigh the costs of doing so. Accordingly, I posit that competitive dynamics introduce the costs associated with disclosing information (i.e., proprietary costs) and that agency theory highlights the benefits associated with disclosing information. Examining the context of seasoned equity offerings (SEOs), I identify three ways managers can use information in SEO prospectuses. I hypothesize that competitive intensity increases proprietary costs that will reduce disclosure of inside information but will increase discussing the organization positively. I then hypothesize that capital market participants (e.g., security analysts and investors) may prefer managers to provide more, clearer, and positive information about the SEO and their firms. I find support for many of my hypotheses.
ContributorsBusenbark, John R (Author) / Certo, S. Trevis (Thesis advisor) / Semadeni, Matthew (Committee member) / Cannella, Albert (Committee member) / Arizona State University (Publisher)
Created2017