From the "Obscure Data Sources That May Be Exploitable For A While" file.
Kidding.
From Columbia Law School's CLS Blue Sky blog, September 24:
Firm managers spend substantial time meeting privately with analysts and investors (e.g., Thomson Reuters 2009; Soltes 2014; Brown, Call, Clement, and Sharp 2015; Bushee, Gerakos, and Lee 2018). As evidenced by a wealth of anecdotes and surveys, such private communications are now found everywhere, becoming an important source of information to sell-side analysts (Brown et al. 2015). Despite the importance of these off-line, non-public interactions, however, little is known about the timing, nature, and value of private communications, primarily due to the data limitations inherent in their private nature. This study seeks to fill this gap by constructing a unique proxy for unobservable, face-to-face private meetings between managers and sell-side analysts from New York City’s (NYC) daily taxi trip records.
The NYC Taxi and Limousine Commission (TLC) collects pick-up and drop-off dates and times of all daily taxi trips in NYC, along with their precise pick-up and drop-off locations. We identify the presence and timing of private meetings by mapping these detailed, large-volume taxi trip records to the GPS coordinates of companies in Compustat and brokerages in I/B/E/S. All identified taxi trips represent ex-ante unobservable private communications, as TLC uploads monthly taxi trip records with a six-month lag. Thus, analyzing taxi rides provides a unique setting to study private communications that have the potential to increase information gaps between participants and others who are left unaware of the occurrence of these private meetings.
We first validate our measure by showing that ride volumes increase significantly around earnings announcement dates (hereafter, EAD) and reach their peak on the day of the earnings announcement. The increase is economically meaningful; the weekly mean of ride volumes around EAD increases by 7.2 percent compared with four weeks before EAD. Moreover, consistent with taxi rides capturing sell-side analysts’ activities, we find that the magnitude of increases in ride volumes between a company and broker is significantly greater for brokers having analyst coverage of companies than for those without such coverage.
Using the validation analyses as a starting point, we examine the value of private communications. While managers have limited ability to convey material non-public information to analysts in private settings under Regulation Fair Disclosure (Reg FD), the unclear definition of materiality allows managers considerable leeway in helping analysts fill in their “mosaic view” of the companies (SEC 2000). Thus, private communications may improve the accuracy of analysts’ earnings forecasts and enhance the quality of their stock recommendations by providing analysts with likely non-material pieces of information that can become material, when taken together, within the context of other public and private information that they already have. For example, private communications around EAD could provide analysts with additional details and contexts into firm news and future developments, enabling them to better understand the implications of current earnings signals for future earnings (SEC 2002). Consistent with our prediction, we find that private meetings around EAD are significantly negatively associated with analysts’ earnings forecast errors issued in the post-EAD period and positively associated with the profitability of recommendations issued after EAD (but these effects dissipate over longer horizons).
While our findings do not speak directly to whether managers violate Reg FD (and that is not the purpose of this study), it is certainly possible that analysts obtain material information during the in-person communications....
....MUCH MORE (some excellent references)
