Private Interaction Between Firm Management and Sell-Side Analysts

Eugene F. Soltes

Article | Journal of Accounting Research | March 2014

Private Interaction Between Firm Management and Sell-Side Analysts

Abstract

Although sell-side analysts often privately interact with managers of publicly traded firms, the private nature of this contact has historically obscured direction examination. By examining a set of proprietary records compiled by a large-cap NYSE traded firm, I offer insights into which analysts privately meet with management, when analysts privately interact with management, and why these interactions occur. I also compare private interaction to public interaction between analysts and managers on conference calls. The evidence suggests that private interaction with management is an important communication channel for analysts for reasons other than firm-specific forecasting news.

Keywords: Interpersonal Communication;

Format: Print

SSRN Find at Harvard

Citation:

Soltes, Eugene F. "Private Interaction Between Firm Management and Sell-Side Analysts." Journal of Accounting Research 52, no. 1 (March 2014): 245–272.

Compliance programs help companies align the interests and behavior of employees with external expectations and regulation. The case discusses how ABInBev, a major brewer, developed its compliance program.

Firms spend millions of dollars annually on whistle-blower hotlines, training, and other efforts to ensure adherence to laws, regulations, and company policies. Yet malfeasance remains entrenched in the corporate world. Why? Too many firms treat compliance as a box-checking exercise, making employees sit through training and attest that they understand the rules, but failing to assess the effectiveness of their compliance programs, or doing so with faulty metrics. The authors explain how we reached this sorry state—and how we can remedy it. Firms should start by linking compliance initiatives more closely to specific objectives: preventing misconduct, detecting it, or aligning policies with laws and regulations. Then, using careful model design and some creativity, firms can develop better metrics to measure what’s working and what isn’t.

Rajat Gupta, former managing director of McKinsey & Company; a director of Goldman Sachs, Procter & Gamble, and AMR; and a well-known philanthropist, was convicted of engaging in insider trading. The case explores Gupta’s rise and the later legal problems he faced.

Faculty & Research

Private Interaction Between Firm Management and Sell-Side Analysts

Abstract

Citation:

About the Author

More from the Author