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Article
Publication date: 14 August 2017

Elena Precourt and Henry Oppenheimer

The purpose of this paper is to examine analyst followings of firms starting from one year prior to their filing for Chapter 11 and as the firms progress through bankruptcy…

265

Abstract

Purpose

The purpose of this paper is to examine analyst followings of firms starting from one year prior to their filing for Chapter 11 and as the firms progress through bankruptcy proceedings with a focus on firms receiving “Hold” or better recommendations. The authors attempt to answer questions such as what the common characteristics of the firms receiving stronger than expected recommendations one year prior to filing for bankruptcy reorganization or while in bankruptcy are, and how the market reacts to the issuance of stronger ratings for those firms.

Design/methodology/approach

The authors design various regressions and apply them to a total of 2,754 sell-side analyst recommendations and 325 firms that are either approaching bankruptcy filing or in the process of reorganizing. In each analysis, the authors control for several firm and performance characteristics.

Findings

The authors find that the probability of securing stronger ratings is higher for small firms and for those followed by a greater number of analysts than for large firms and firms followed by fewer analysts. The market becomes more skeptical of optimistic evaluations closer to the date of bankruptcy filing (perhaps reflecting some anticipation) and reacts more positively to rating upgrades issued during bankruptcy protection than to the upgrades issued before the bankruptcy filing.

Research limitations/implications

The conclusions are based on the analysis of analyst recommendations issued shortly before Chapter 11 filings and during bankruptcy proceedings. The conclusions could be strengthened by further analysis of firms’ post-bankruptcy recovery and performance and examination of analyst recommendations issued for the firms after they emerge from Chapter 11..

Practical implications

Analyst security ratings that are more positive than expected are perhaps the result of superior expertise and access to private information. During bankruptcy proceedings, when information disclosure is limited, investors could greatly benefit from reports issued by security analysts.

Originality/value

This study contributes to the literature in a number of ways. First, the authors contribute to the literature on the analyst ratings of firms in distress by considering the period between bankruptcy filing and emergence, while the existing literature provides analysis of pre-bankruptcy recommendations and forecasts. Second, the authors focus on better than expected ratings rather than all types of ratings as the firms approach bankruptcy filings and proceed through reorganization. Finally, they evaluate how investors react to stronger than expected analyst ratings.

Details

Review of Accounting and Finance, vol. 16 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 11 January 2019

Elena Precourt

The purpose of this paper is to examine the section of the Jumpstart Our Business Startups (JOBS) Act related to information dissemination by sell-side security analysts. The…

153

Abstract

Purpose

The purpose of this paper is to examine the section of the Jumpstart Our Business Startups (JOBS) Act related to information dissemination by sell-side security analysts. The paper analyzes how the abolishment of the quiet period requirements for emerging growth companies (EGCs) changes the analyst initiation timing and market expectation of and reaction to the issuance of the analyst recommendations.

Design/methodology/approach

This paper considers the effect of the abolishment of the quiet period requirements on analyst coverage initiations for EGCs with IPOs between January 2006 and December 2015 using regression analyses and probability models.

Findings

The results confirm the current anecdotal and empirical evidence that a shorter, de facto, quiet period exists. Analyst issue stronger average ratings for EGCs than for similar firms with IPOs before the JOBS Act. EGCs with initiations from multiple analysts also experience stronger positive market reaction than the firms with initial offerings before the JOBS Act. The market seems to anticipate which EGCs will have initiations and particularly which EGCs will have initiations from multiple analysts. The investors, however, do not fully anticipate the strength of actual recommendations.

Practical implications

This paper is important for researchers, practitioners and policy-makers to understand how analysts impact the financial markets, how timing of analyst initiations affects stock prices of EGCs and what firm characteristics play a role in securing analyst coverage shortly after initial offerings.

Originality/value

This paper adds to the emerging literature on consequences of and changes brought by the JOBS Act. Specifically, this paper extends the limited literature on analyst initiations issued for firms with IPOs following the JOBS Act, timing of those initiations and magnitude of the market’s response to the initiations.

Details

Journal of Financial Regulation and Compliance, vol. 27 no. 1
Type: Research Article
ISSN: 1358-1988

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Book part
Publication date: 11 August 2016

Charles P. Cullinan, Xiaochuan Zheng and Elena Precourt

We assess whether smaller investors are more likely to hold shares of closed-end funds that invest more heavily in illiquid securities. We also examine the relationship between…

Abstract

We assess whether smaller investors are more likely to hold shares of closed-end funds that invest more heavily in illiquid securities. We also examine the relationship between the liquidity of the securities held in the portfolios of closed-end mutual funds (portfolio liquidity) and the liquidity of the closed-end funds’ shares (fund-share liquidity). Using a sample of 1,619 fund-years from 2010 to 2012, we find that smaller investors are more likely than institutional investors to own closed-end funds. We also find that the liquidity of closed-end funds’ portfolios is positively associated with the liquidity of the funds’ shares. Our findings are consistent with the “liquidity benefits” notion that closed-end funds are a means for smaller investors to invest in less liquid securities. In addition, our findings are consistent with the “valuation skepticism” notion which indicates that, due to the difficulty of objectively valuing illiquid securities, different perceptions of the value of illiquid securities held in funds’ portfolios may result in greater fund-share liquidity.

Details

The Spread of Financial Sophistication through Emerging Markets Worldwide
Type: Book
ISBN: 978-1-78635-155-5

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Book part
Publication date: 11 August 2016

Abstract

Details

The Spread of Financial Sophistication through Emerging Markets Worldwide
Type: Book
ISBN: 978-1-78635-155-5

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