Search results
1 – 10 of over 12000Russell D. Sacks, Steven R. Blau and Taro Nishide
To address practical issues broker-dealers may face in reviewing and revising their policies and procedures in response to FINRA’s new fixed-income research rule, modifications to…
Abstract
Purpose
To address practical issues broker-dealers may face in reviewing and revising their policies and procedures in response to FINRA’s new fixed-income research rule, modifications to its equity research rule, and its FAQs regarding conflicts of interest in the offering process.
Design/methodology/approach
Reviews FINRA’s new fixed-income research rule, modifications to its equity research rule, and its FAQs regarding the its equity research rule, and provides detailed comparisons between current rules and new rules to help firms consider how to review and revise their policies and procedures.
Findings
Although significant exemptions may apply depending on firm structure, under FINRA’s new fixed-income research rule, firms producing fixed-income research reports will now be subject to regulation similar to that FINRA has imposed on firms producing equity research reports, including with respect to information barriers, other policies and procedures, and certain disclosures. The modified FINRA equity research rule retains the core provisions of the existing NASD and NYSE equity research rules and adds a “principles-based procedures” approach to potential conflicts of interest, shortens or eliminates quiet periods, and imposes some of the Global Settlement prohibitions on all firms. Firms will need to review and revise their policies and procedures for research in response to these rule changes. Firms should also take note of FINRA’s guidance in its FAQs regarding conflicts of interest in the offering process.
Originality/value
Overview of recent FINRA enforcement activity, rule modifications, and practical guidance from experienced securities and financial services lawyers.
Details
Keywords
Bipin Sony and Saumitra Bhaduri
The objective of this paper is to investigate the role of information asymmetry in the equity selling mechanisms chosen by the firms from an important emerging market, India…
Abstract
Purpose
The objective of this paper is to investigate the role of information asymmetry in the equity selling mechanisms chosen by the firms from an important emerging market, India. Specifically, the authors look into the choice between the two most popular mechanisms of equity issues – rights issue and private placement of equity.
Design/methodology/approach
This study introduces three analyst specific variables as proxies of information asymmetry as the conventional proxies are fraught with several disadvantages. First, the paper tests the choice between rights issue and private placement using a binary logistic model. In the second approach the authors use rights issue and segregate the private placements into preferential allotments and qualified institutional placements and test the impact of information asymmetry using a multinomial logistic regression.
Findings
The outcome of this empirical exercise shows that only those firms facing lesser information problems choose rights issue of equity. Private placements are chosen by firms facing higher information problems to circumvent information costs. The results remain invariant even after segregating the qualified institutional placements from private equity placement as the firms with information disadvantage choose to place equity privately.
Originality/value
In contrast to the conventional studies that focus on the debt-equity framework, the authors argue that the impact of information asymmetry is applicable even at disaggregated levels of equity selling mechanism.
Details
Keywords
Amy Natterson Kroll and John Ayanian
To analyze the changes to the FINRA equity research rules and evaluate concerns that may be important to and have an impact on equity research activities following the effective…
Abstract
Purpose
To analyze the changes to the FINRA equity research rules and evaluate concerns that may be important to and have an impact on equity research activities following the effective date.
Design/methodology/approach
This article provides an overview of the changes reflected in FINRA Rule 2241 pertaining to equity research analysts and research reports, as well as changes to licensing requirements for equity research analysts. It highlights potential issues for firms and provides some commentary on how these issues should be considered in light of FINRA’s articulated position and assurances FINRA has given to the SEC.
Findings
This article concludes that firms should anticipate these changes and begin a comprehensive review of research policies and procedures, the personnel who prepare research reports and the scope of their research products so as to be compliant with Rule 2241 from its effective date. Firms should also begin an investigation of technologies used to gather, produce and disseminate research and required disclosures to ensure they meet the new requirements when they are effective.
Originality/value
This article provides insight into the new FINRA Rule 2241 and practical guidance from experienced securities lawyers.
Details
Keywords
This paper aims to explore how sell-side analysts and salespeople make sense of uncertainty on their market knowledge, valuation and marketing outputs.
Abstract
Purpose
This paper aims to explore how sell-side analysts and salespeople make sense of uncertainty on their market knowledge, valuation and marketing outputs.
Design/methodology/approach
Data is collected by direct observations of and interviews with analysts and salespeople in the Turkish stock exchange, an emerging market with considerable global fund management activity.
Findings
Analysts face considerable uncertainty on their market value forecasts but dismiss it as local dynamics not incorporable to valuation practices in global sell-side business. Salespeople, despite paying more attention to such dynamics owing to their sales tasks, limit themselves to analyst output in marketing. Both actors recognise the importance of analyst work to be able to have “a right to speak” in global sell-side business.
Research limitations/implications
Changing market conditions and regulations since the time of study have been shaping analysts and salespeople work in global sell-side business, for example, the way sell-side is compensated by buy-side, buy-side’s move to receiving sell-side services from fewer brokers and hence shrinking sell-side teams. The paper does not address these. Nonetheless, it shows how valuation and marketing can be two distinct lines of work in sell-side business irrespective of market conditions and raises the question for future research as to how sell-side professionals manage this distinction, and how they make sense of and cope with broad market dynamics beyond sell-side and buy-side relations (e.g. automated trading machines, online retail trading).
Originality/value
The paper provides rare observation-based insights into analyst and salespeople work, including their sensemaking of uncertainty. It shows the importance of market identities and associated knowledge in valuation and marketing work in sell-side business.
Details
Keywords
Samuel J. Winer, Amy N. Kroll and Arden T. Phillips
The National Association of Securities Dealers and the New York Stock Exchange recently have adopted and then amended new rules relating to research analyst conflicts of interest…
Abstract
The National Association of Securities Dealers and the New York Stock Exchange recently have adopted and then amended new rules relating to research analyst conflicts of interest. However, open questions remain, and these two self‐regulatory organizations (SROs), in collaboration with the SEC, must provide further guidance on the application of these rules to various day‐to‐day situations such as an analyst receiving a customer inquiry concerning investment banking capabilities, a firm’s participation in an investment banking syndicate after the firm’s analyst has begun research coverage of the issuer, procedures for analysts to conduct due diligence, publishing research reports on an issuer while a firm is engaged in a distribution of the issuer’s securities, and analysts’ limitations during distribution quiet periods.
Details
Keywords
Yoon‐Young Lee and Stephanie Nicolas
Following a spate of corporate scandals, the bursting of the “Internet bubble,” and media revelations of research analyst bias at the nation’s largest investment banks, regulators…
Abstract
Following a spate of corporate scandals, the bursting of the “Internet bubble,” and media revelations of research analyst bias at the nation’s largest investment banks, regulators launched a series of investigations and rulemaking initiatives that culminated in the adoption of extensive new rules regarding the conduct of research analysts and in the April 2003 global settlement (“Global Settlement”) of enforcement actions against 10 firms relating to research and investment banking conflicts. Although the Global Settlement by its terms only applies to the settling firms, as a practical matter, its reach will be much broader because state regulators and other third parties are looking to it to define a set of “best practices” to supplement the new rules. Although the new rules and the Global Settlement are intended to address the same concern ‐ i.e., conflicts of interest between research analysts and investment banking personnel at multi‐service brokerage firms ‐ their approaches to handling these conflicts reflect different assumptions and result in regulatory regimes that differ in such basic respects as the universe of persons who are deemed to be “research analysts.” These differences are not surprising. The new rules are the product of a lengthy, iterative rulemaking process that was open to the public and in which a diverse range of interested parties participated. In contrast, the undertakings detailed in the Global Settlement were the result of an enforcement action, concluded through bi‐lateral negotiations between the regulators and the 10 firms and without the opportunity for other interested parties to provide input or contribute to the process. However, for firms that seek to comply with both sets of requirements, the overlapping, and at times inconsistent, terms create a confusing and costly environment.
Details
Keywords
Surprisingly little is known of the various methods of security analysis used by financial analysts with industry-specific knowledge. Financial analysts’ industry knowledge is a…
Abstract
Purpose
Surprisingly little is known of the various methods of security analysis used by financial analysts with industry-specific knowledge. Financial analysts’ industry knowledge is a favored and appreciated attribute by fund managers and institutional investors. Understanding analysts’ use of industry-specific valuation models, which are the main value drivers within different industries, will enhance our understanding of important aspects of value creation in these industries. This paper contributes to the broader understanding of how financial analysts in various industries approach valuation, offering insights that can be beneficial to a wide range of stakeholders in the financial market.
Design/methodology/approach
This paper systematically reviews existing research to consolidate the current understanding of analysts’ use of valuation models and factors. It aims to demystify what can often be seen as a “black box”, shedding light on the valuation tools employed by financial analysts across diverse industries.
Findings
The use of industry-specific valuation models and factors by analysts is a subject of considerable interest to both academics and investors. The predominant model in several industries is P/E, with some exceptions. Notably, EV/EBITDA is favored in the telecom, energy and materials sectors, while the capital goods industry primarily relies on P/CF. In the REITs sector, P/AFFO is the most commonly employed model. In specific sectors like pharmaceuticals, energy and telecom, DCF is utilized. However, theoretical models like RIM and AEG find limited use among analysts.
Originality/value
This is the first paper systematically reviewing the research on analyst’s use of industry-specific stock valuation methods. It serves as a foundation for future research in this field and is likely to be of interest to academics, analysts, fund managers and investors.
Details
Keywords
Patric Andersson, Johan Graaf and Niclas Hellman
This paper aims to investigate how sell-side analysts form expectations on, analyse, and communicate the effects of corporate acquisitions.
Abstract
Purpose
This paper aims to investigate how sell-side analysts form expectations on, analyse, and communicate the effects of corporate acquisitions.
Design/methodology/approach
The paper reports on case studies of three listed firms who are frequent acquirers. The case data comprise semi-structured interviews and content analysis of analyst reports and corporate reports.
Findings
The paper reports three sets of findings. First, the analysts viewed acquisitions as heterogeneous events and, therefore, also treated acquisitions differently depending on factors such as size and acquisition strategy and the perceived “authenticity” of the acquisition (i.e. whether parts of the acquisition would be more accurately described as organic growth and regular capital expenditure (CAPEX) investments). Second, the authors find that analysts struggle with analysing the effects of acquisitions at the announcement date because of a mismatch between the analysts’ need of and the analysts’ access to relevant information. Although clients demand evaluations of announced acquisitions, relevant accounting information is not published until much later and the information at hand only allows for cursory analyses. Finally, the authors find that the analysts’ valuation models were too inflexible to fully incorporate the effects of the acquisition. In sum, the analysts, therefore, developed acquisition-driven investment cases without supporting accounting information and without converting expected acquisitions into forecasts.
Originality/value
By adopting a qualitative case study research design, the paper contributes to the ongoing efforts to open the “black-box” of sell-side analyst behaviour. In particular, the unique research design focusses on effects related to specific corporate events (acquisitions) rather than analysts’ everyday work.
Details
Keywords
The purpose of this paper is to describe an investment program that offers students with the opportunity to simultaneously manage a private asset fund and a public asset fund. The…
Abstract
Purpose
The purpose of this paper is to describe an investment program that offers students with the opportunity to simultaneously manage a private asset fund and a public asset fund. The program has been in operation since 2013 and has made significant progress in student placement and connectivity with local, regional and national financial firms.
Design/methodology/approach
The authors describe the structure, methods used and challenges encountered in this dual portfolio environment and add relevant thoughts for discussion. The authors discuss potential conflicts of interests that may arise in managing a private equity portfolio, the concern of proper deal flow, the issue of the investment timeline when investing in private equity and the problems encountered when measuring private equity performance.
Findings
While public asset funds have been around for decades and are relatively well accepted throughout all levels and types of higher education institutions. The uses of private equity funds, though not unheard of, are much less prevalent. Allowing the same group of students to manage both type of portfolios is relatively unique and provides with a more comprehensive learning experience.
Originality/value
A primary distinguishing attribute of this program is that accepted students are given the opportunity to simultaneously manage both public and private equity assets throughout an academic year. The goal is to create a comprehensive portfolio management program that replicates a changing investment management environment where private equity is an increasingly significant asset class.
Details
Keywords
Alessandra Allini, Rosanna Spanò, Ning Du and Joshua Ronen
The current paper aims to understand whether fair value accounting (FVA) affects analysts’ loan approval decisions and default risk judgments.
Abstract
Purpose
The current paper aims to understand whether fair value accounting (FVA) affects analysts’ loan approval decisions and default risk judgments.
Design/methodology/approach
This study focusses on three issues: unrealized gain or loss resulting from FV measurement recognized in other comprehensive income (OCI), recognition of assets at FV or historical cost and the disclosure or non-disclosure of the FV of collateral assets. It uses an experiment carried out with a sample of 29 CFA analysts.
Findings
The results show that all three issues have a significant effect on analysts’ judgment and decision-making in processing FV estimates.
Originality/value
The paper extends knowledge on how financial analysts perceive FV estimates and disclosure and may help the accounting standard boards assess the challenges facing analysts when they apply professional judgments in interpreting FV measurements and disclosures. Moreover, it offers fresh views to the debate on the decision usefulness of FVA, particularly relevant in the post-implementation review of IFRS 13.
Details