Clifton Green, Russell Jame, Stanimir Markov, and Musa Subasi
Broker-hosted investor conferences
Journal of Accounting and Economics | Volume 58, Issue 1 (Aug 2014), 142–166

Institutional investors allocate billions of dollars in commissions each year as a payment for brokerage research. Conventional wisdom equates brokerage research with the distribution of stock recommendations and earnings forecasts, yet institutional investors routinely rate “access to management” over all published forms of research. One way brokerage firms meet investors' demand for access to management is by organizing conferences which connect their institutional clients with company executives. Broker-hosted investor conferences are invitation-only events that include formal company presentations as well as private breakout sessions with select investors and management.

We address three questions. What types of firms attend broker-hosted investor conferences? Do institutional investors reward brokerages for facilitating access to management? Do firms benefit from participation in investor conferences?

What types of firms participate in broker-hosted investor conferences?

Our conference data are obtained from Bloomberg Corporate Events Database, and they include information on the broker host and the firms in attendance for the period 2004-2008. We merge the conference data with brokerage stock recommendation data from IBES, institutional transaction data from Ancerno, and company information from CRSP and Compustat. Of the 108 research brokers in our sample, 66 brokers host conferences, with a broker average of 7 conferences per year attended by roughly 24 companies. Hosting brokers tend to be larger, and analyst hosts tend to be more experienced and reputable.

Conferences often have an industry focus, and we first explore whether brokers emphasize certain industries. Table 1 shows healthcare firms attend more conferences than firms in other industries. We also create a hosting-to-covering ratio to examine brokers' relative propensity to host rather than cover firms through published research. We find brokers are most likely to emphasize conferences relative to traditional research for healthcare and drug firms as well firms in the business equipment industry (which includes tech firms). On the other end of the spectrum, they are relatively least likely to host utility or energy firms.

1: Brokerage Research by Industry
Brokers Hosting Brokers Covering Hosting/Covering
at Conferences with Research Ratio
Healthcare & Drugs 2.75 3.70 0.74
Business Equipment 1.92 4.55 0.42
Telephone & Television 1.69 4.55 0.37
Manufacturing 1.11 3.06 0.36
Other 1.00 2.94 0.34
Wholesale & Retail 1.43 4.24 0.33
Consumer Durables 0.88 3.01 0.29
Consumer Non-Durables 0.85 3.07 0.28
Utilities 0.97 3.62 0.26
Oil, Gas, & Coal 1.13 5.36 0.21
Healthcare firms attend more conferences than other firms.

Brokers Hosting at Conferences is the firm-level average of the number of brokers hosting the firm. Brokers Covering with Research is defined similarly. For example, the average Healthcare firm attends 2.75 conferences per year and is covered with published research by 3.7 brokers. Hosting/Covering is the ratio of these two variables and shows the relative propensity to host a firm at a conference.

We conjecture that the industry variation in hosting activity is driven by differences in valuation complexity. For example, biotech firms are harder to value than utility firms, and therefore they garner more invitations to conferences where investors can meet with management and ask questions to flesh out their understanding of the company. We explore this idea using two proxies for valuation difficulty at the firm level: intangible assets (e.g., patents) and R&D plus advertising expenditures, which are harder to value than other capital expenditures (e.g., to purchase property).

We examine the relation between these and other firm characteristics and four possible categories of broker research output: (1) no research at all, (2) published research only, (3) hosting at conferences only, and (4) both published research and hosting. Not surprisingly, large firms with high institutional ownership and greater turnover are more likely to receive both types of research. Our interest is in contrasting hosting with publishing. Consistent with there being greater client demand for management access among hard-to-value firms, we find firms with higher levels of intangible assets and greater R&D and advertising expenses are more likely to be hosted at a conference than covered with published research. This relation also holds when we examine the number of conferences attended relative to the number of reports published. Finally, we find young companies and those that are planning to issue equity are more likely to attend broker-hosted conferences, suggesting firm incentives to seek investor recognition also play an important role in conference attendance.

Do institutional investors reward brokers for hosting conferences?

Institutional investors pay for brokerage research through trading commissions, and we examine whether brokers attract greater commissions in conference stocks. Our commission data are from Ancerno, a consulting firm which helps institutional investors monitor transaction costs. Their clients account for roughly 8 information on transaction volume and price, as well as which broker executed the trade and the level of commission paid. Because the data allow us to measure a broker's commission share in a given stock over a particular period, we are able to empirically investigate the incremental benefits of hosting a firm at a conference.

Figure 1 shows average monthly commission share for a stock after hosting the firm at a conference. Host commission share peaks at roughly 5.5% in the month of the event and gradually 3 falls to 4.6% a year after the conference. The 4-5% level of commissions is more than twice the average stock-level commission share among conference hosting brokers (1.8%), which suggests conference participation may proxy for additional research services such as a company visits or non-deal road shows.

1: Monthly commission share following investor conferences
green-jame-markov-subasi
Monthly commission share for a stock after hosting a firm at a conference leaks in the month of the event and gradually falls afterwards.

Focusing on the month of the conference, we find commission share is largest during the first week after the conference, suggesting conferences have an immediate effect on commissions. Moreover, informative conferences, as measured by price changes or trading volume in the days around the event, lead to greater increases in weekly commission share. This result suggests institutional investors compensate brokers for facilitating the transfer of market moving information.

Table 2 examines the importance of investor conferences for broker commissions relative to traditional published research. The regression coefficients in the first column show that hosting a company at a conference increases commission share by 3.4%, which is similar to the effect of covering a company with stock recommendations (2.2%, with each recommendation raising commission share by 1.4%). One concern with our approach is that conference hosts tend to be large brokers, so comparing hosts with non-hosts may be picking up difference in broker size or reputation. We address this by including broker fixed effects. The last column of Table 2 compares commission share for conference and non-conference stocks within a given broker. We observe that the effect of a hosting a firm is weakened but still comparable to the effect of coverage with traditional research.

The effects of investor conferences are economically meaningful, with conferences having a sizable impact on hosting brokers' annual revenues. Based on conservative estimates, we calculate that hosting an additional conference is associated with a $260,000 increase in annual commissions directly in conference stocks, and we note that investors may reward brokers with additional trading in non-conference stocks as well.

2: Explaining monthly commision share with brokerage research
Conference in the last year 3.36 1.89
[11.48] [7.20]
Coverage in the last year 2.15 1.19
[7.85] [9.38]
Number of Recommendations 1.37 0.88
[15.93] [11.03]
Fixed Effects Intcpt Broker
Adjusted R-squared 2.48% 8.25%
Hosting a company at a conference increases commission shares. The T-statistics are in parentheses.

We regress broker commission share (at the individual stock level) on measures of brokerage services and control variables. Conference in the last year is equal to one if the firm attended a conference hosted by the broker in the past year. Coverage in the last year is equal to one if the broker issued a stock recommendation on the firm in the last year. Number of Recommendations is the total number of recommendations issued by the broker on the firm over the past year. Bother regressions include controls not tabulated for brevity.

How do firms benefit from participating at conferences?

Anecdotal evidence suggests firms view broker-hosted investor conferences as a valuable tool for communicating with the investment community. Conferences provide unique opportunities to discuss the company's value proposition with current and potential investors and build connections with equity analysts. According to a 2009 Investor Relations survey by Hanley & Associates, broker-hosted investor conferences are the second most significant channel of investor outreach, after non-deal road shows and ahead of investor visits of company headquarters (Gedvila, 2010).

We first consider whether conference attendance improves investor recognition. Table 3 reports the coefficients of regressing analyst following, institutional ownership, and a measure of stock liquidity (bid-ask spread) on variables related to conference attendance. We find that firms experience an increase in analyst coverage of 0.34 analysts and a 1.24% increase in the level of institutional ownership. These effects are economically meaningful relative to the mean coverage of 4.9 analysts and institutional ownership of 52%. The effects are also significantly larger if the conference was the first one attended by the firm in over a year. The improvements in investor recognition following conferences also translate into enhanced liquidity. Bid-ask spreads fall by 6%, with an additional 3% if the conference was the first in a year.

To gauge the effect of conferences on the market valuation of a firm, we examine changes in the cost of equity capital and Tobin's q. Our cost of capital measure, standard in the accounting literature, is implied from estimates of future earnings based on past earnings and other financial statement variables. The last two columns of Table 3 show the results. We find that conference participation is associated with a decline in cost of equity capital of 0.87%. Relative value, as measured by Tobin's q (market value of assets over book value of assets), increases by 0.03, although neither measure changes significantly more so when the conference is the first in a year. Taken together, our findings suggest conferences convey important benefits to firm participants.

3: Firm Benefits of Conference Participation
Change in Change in Change in Change in
Analyst Institutional Bid-Ask Cost of Change in
Following Ownership Spread Capital Tobin's q
Conference 0.34 1.24 –0.06 –0.87 0.03
[13.06] [9.64] [–12.49] [–10.45] [3.17]
First Conf. in a Year 0.08 1.51 –0.03 –0.07 0.00
[2.17] [7.87] [–4.03] [–0.72] [0.08]
(Industry and year fixed effects are always included)
Adjusted R2 9.41 15.48 43.27 28.91 34.44
Conference participation is associated with a decreased cost of capital and higher Tobin's Q. An increase in analyst following an increase in institutional ownership. The T-statistics are in parentheses.

The table shows the coefficients from regressions of annual changes in firm outcomes on variables related to conference participation. Conference is an indicator variable that is one if the company participates at a conference in the current quarter (zero otherwise). First Conference in a Year is one if the company did not present in the previous three quarters (zero otherwise). Each regression includes controls that we do not report for brevity.

Conclusion

Broker-hosted investor conferences are invitation-only events that allow access to management for select institutional clients. We find that firms with high institutional ownership and high intangibles assets attend more conferences, consistent with brokers catering to institutional clients and greater client demand for management access when valuation difficulty is high. We also find that younger firms and those that issue equity in the future attend more conferences, consistent with firms viewing conference participation as a vehicle for increasing investor recognition. Finally, we document substantial benefits for brokers, in the form of increased trading revenues, and for firms, in the form of improved investor recognition, liquidity, and valuation. Our findings point towards broker-hosted conferences as an equilibrium arrangement benefitting both the broker-host and firm-participants, and underscore the interconnected nature of corporate investor relations activities and brokerage research activities.


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