Do Analysts Merely Serve as a Conduit for Management's Private Information? Evidence From Their Stock Recommendations Around Regulation FD

Abstract

This study uses Reg FD to determine the relative importance of analysts' private information from firm management versus independent research. Using earnings-related closed conference calls as a proxy for the private communication between management and analysts and the informativeness of stock recommendation revisions as a proxy for analysts' total private information, we find the informativeness of analysts' recommendation downgrades but not upgrades issued following the earnings announcement declines significantly from the pre-Reg FD period to the post-Reg FD period for closed conference call firms relative to non-conference call firms. We do not find a similar decline in the recommendation informativeness for open conference call firms relative to non-conference call firms. In addition, the bad news from closed conference calls reflected in downgrades represents only one third of analysts' total private information reflected in downgrades. Our empirical results do not suggest that analysts merely serve as a conduit for management's private information.