For sell-side analysts who cover publicly traded companies, scoring a solo meeting with executives at a firm they follow can yield important information that can bolster an analyst’s reputation.
Yet a new study finds that once that analyst visit is disclosed—required under market rules in China—competing analysts tend to back off coverage of the visited firm for two to four weeks, and sometimes drop coverage altogether. Rival analysts often turn their attention to the visited company’s competitors in the immediate period following disclosure of such a visit.
“Public Disclosure of Private Meetings: Does Observing Peers’ Information Acquisition Affect Analysts’ Attention Allocation?” shows how this unexpected effect can temporarily diminish the quality of information about the visited company. Forthcoming in the Journal of Accounting Research, the study finds that this effect takes about a year to stabilize.
“This information advantage, this first-mover advantage, is very important for analysts,” explains Yuan Zou, an Assistant Professor and Hellman Faculty Fellow at Harvard Business School and one of the paper’s authors. “If you think about it, it's intuitive. For example, as researchers, if someone is working on one area I’m working on, of course the main driver would be my own interest. But if there's something new that nobody touched before, I may see a better opportunity there.”
The research sheds light on the strategic decisions of analysts in China’s growing brokerage industry, which managed $1.8 trillion in assets as of December. While the industry has been consolidating, analysts in China play a key role in disseminating information about publicly traded companies, the number of which has more than doubled during the past decade.
Zou partnered on the work with Yi Ru of the Renmin University of China and Ronghuo Zheng from the University of Texas at Austin.
The timely disclosure mandate
Zou and colleagues studied the three-year period before and after new disclosure rules were enacted by regulators in China for the Shenzhen Stock Exchange (SZSE) in 2012, examining more than 4,000 analysts and 800 firms.
In 2006, the SZSE proposed its Information Fair Disclosure Guidelines, which mirror the 2000 US Regulation Fair Disclosure (Reg FD) rules. Both nations prohibit selectively disclosure of “material” information—that is, financial or other significant metrics and events—that could give direction about a firm’s projected or overall performance and impact stock and other security prices.
The rules aim to eliminate what regulators call “selective disclosure.” The idea is to give all investors a fair shot at information at a time when markets can move in an instant and any nuanced information may help investors make a buy or sell call.
The 2012 rules additionally required timely public disclosure of private events such as an analyst’s visit. Under the rule, companies must disclose such information about events like analyst visits within two trading days.
Before 2012, disclosure by SZSE companies typically took 100 days. Even without information classified as material such as earnings forecasts disclosed on a private analyst visit, nuances gleaned by the analysts, who sometimes bring investor clients to meet with company executives, have important knock-on effects, the authors say.
The flow of information after disclosure rules
The authors examined the time periods between 2009 and 2011 and between 2013 and 2015, excluding 2012 itself to allow for an adjustment period. In the years before the mandate, information about visits was disclosed in periodic public reports for companies that hosted analysts. After the mandate, visit information was disclosed within two trading days; analysts couldn’t confirm or use information from a rival’s visit in a timely way before the rules were implemented in 2012. The authors found that the disclosure rules shifted the sharing of information in several key ways:
On average, 1.8 percent of analysts visited a company within two weeks of a peer’s visit, and 3.5 percent within four weeks.
About 7.8 percent of the companies covered by each analyst were visited by peers in a given week.
Following the timely disclosure mandate, analysts decreased their likelihood of visiting a firm visited by other analysts during the next four weeks by 1 percent, which equals approximately 29 percent of the sample average.
More than 14 percent of analysts studied were “star” analysts.
The decreased attention effect is stronger when the rival analysts visiting the firm are star analysts or have visited the firm before.
The decreased attention reduces the information environments in the immediate aftermath of an analyst visit. The effect is reflected in the lower consensus analyst forecast accuracy and the tendency of stock prices to move in tandem with markets.
Competing firms that weren’t visited drew attention from rival analysts, and more information became public about those companies.
For companies: nuanced expectations
While Zou’s research focused on China, the findings show how analysts anywhere can act as intermediaries among the firms, investors, markets, and other interested parties. Their strategic actions can have important implications for companies’ information environments and the financial markets. Meeting with an analyst can help companies:
Clear up potential investor confusion, even without releasing material information.
Manage market expectations within regulatory limits.
For example, firms are no longer allowed to privately call analysts to hint that estimates for material metrics such as sales, earnings, or cash flow should be changed. In 2022, the US Securities and Exchange Commission fined AT&T $6.25 million for selectively disclosing information about revenue forecasts, Zou notes.
“The companies cannot disclose material, non-public information to visiting analysts, but analysts can ask some clarification questions, helping to manage expectations in the markets,” Zou says. “As for corporate managers, however, it is important for them to carefully disclose information within regulatory limits. ”
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Public Disclosure of Private Meetings: Does Observing Peers’ Information Acquisition Affect Analysts’ Attention Allocation?
Ru, Yi and Zheng, Ronghuo and Zou, Yuan, Public Disclosure of Private Meetings: Does Observing Peers’ Information Acquisition Affect Analysts’ Attention Allocation? (January 21, 2025).
