Sell‐Side School Ties

By Lauren Cohen, Andrea Frazzini, Christopher J. Malloy. 2010

681 citations recorded by the source corpus.

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 5.40% 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 8.16% 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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/174d346b2019a7b04cba4bf975d7b4869f02217c

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Citations in the corpus

Do school ties between auditors and client executives influence audit outcomes (2016, neutral): “analyst recommendations (Cohen et al., 2010), venture capital investments (Hochberg et al.”
Cultural proximity and loan outcomes (2017, neutral): “[25] Cohen, Lauren, Andrea Frazzini, and Christopher Malloy, 2010, “Sell Side School Ties,” forthcoming, Journal of Finance.”
What’s in an education? Implications of CEO education for bank performance (2016, methodology): “We collect data on the types of degrees held by CEOs (undergraduate, MBA, or PhD) and identify if the awarding university is amongst the top- 20 U.S. institutions according to U.S. World and News Report, following Bhagat et al. (2010) and Cohen et al. (2010).”
Misinformed Speculators and Mispricing in the Housing Market (2016, background): “However, this effect applies more broadly. e.g., Cohen, Frazzini, and Malloy (2010) study effect of a sell side equity analyst’s social network on her ability to gather information.”
Boardroom Centrality and Firm Performance (2013, positive): “…network studies focus on interpersonal relationships between specific agents within an isolated context, such as between a firm and a lender in determining credit terms or a manager and a security analyst in determining analyst recommendations (e.g., Engelberg et al., 2012; Cohen et al., 2010).”
The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics (2015, background): “Relatedly Cohen et al. (2010) note “that sell-side analysts have an incentive to produce unbiased forecasts and recommendations for investors only if they are compensated for such behavior. Due to a lack of data on direct compensation, the literature generally tests this idea by linking analyst beha”
Can Facebook Predict Stock Market Activity (2013, neutral): “…networking sites can be especially insightful and interesting for applications, which focus on information transmission and social networks (e.g. Cohen et al., 2010). speculative episodes in the stock markets such as the internet bubble in the late 1990s, or more recently the subprime credit…”
Ethnic matching in the U.S. venture capital market (2015, background): “, 2008) and financial analysts make better forecasts (Cohen et al., 2010).”
THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON INVESTMENT RECOMMENDATIONS. (2010, background): “Relatedly Cohen et al. (2010) note “that sell-side analysts have an incentive to produce unbiased forecasts and recommendations for investors only if they are compensated for such behavior. Due to a lack of data on direct compensation, the literature generally tests this idea by linking analyst beha”