Regulators and the general public frequently advocate for higher-quality disclosure policies to reduce information asymmetry. Research and anecdotal evidence documents sizable benefits to firms that maintain high quality disclosure. This thesis explores the costs and benefits of changing disclosure quality from the perspective of the financial analysts, a sophisticated user group. This thesis presents a comprehensive view of analysts’ evaluations of disclosure quality. I investigate capital market reaction when firms experience a sustained decrease in analyst disclosure ratings. The results demonstrate that firms with deteriorating disclosure experience negative consequences, consistent with increasing information asymmetry. However, the magnitude is not as large as expected given the benefits enjoyed when disclosure quality improves. Given that firms that allow their disclosure quality to decline give up benefits they previously enjoy, I investigate why they allow this decline to occur. The deterioration is negatively associated with the interaction between capital demand and expected earnings performance implying that when firms require capital, but are expecting poor future earnings, they are more likely to permit a deterioration to occur. Declines are also associated with the occurrence of various disruptive events that imply greater uncertainty about the firm. These firms have a strong demand for external capital which they satisfy by accessing private and public debt markets. Overall, firms that experience disclosure ratings declines are not a mirror image of firms that experience ratings increases. Finally, I investigate the association between the disclosure ratings and quantitative disclosure characteristics. The results indicate significant associations, consistent with the assumption that easily accessible and quantifiable disclosure measures are captured in analysts’ ratings of disclosure quality. This thesis adds to the literature by providing insight into how analysts evaluate disclosure quality and what managers are willing and able to deliver. The research documents attributes of disclosure quality that are regarded as important by financial analysts. While analysts are a key set of financial statement users, there are many other types of users. By understanding disclosure quality from a user's perspective, regulators and researchers are more able to anticipate the implications of a proposed change in disclosure rules.

Regulators and the general public frequently advocate for higher-quality disclosure policies to reduce information asymmetry. Research and anecdotal evidence documents sizable benefits to firms that maintain high quality disclosure. This thesis explores the costs and benefits of changing disclosure quality from the perspective of the financial analysts, a sophisticated user group. This thesis presents a comprehensive view of analysts’ evaluations of disclosure quality. I investigate capital market reaction when firms experience a sustained decrease in analyst disclosure ratings. The results demonstrate that firms with deteriorating disclosure experience negative consequences, consistent with increasing information asymmetry. However, the magnitude is not as large as expected given the benefits enjoyed when disclosure quality improves. Given that firms that allow their disclosure quality to decline give up benefits they previously enjoy, I investigate why they allow this decline to occur. The deterioration is negatively associated with the interaction between capital demand and expected earnings performance implying that when firms require capital, but are expecting poor future earnings, they are more likely to permit a deterioration to occur. Declines are also associated with the occurrence of various disruptive events that imply greater uncertainty about the firm. These firms have a strong demand for external capital which they satisfy by accessing private and public debt markets. Overall, firms that experience disclosure ratings declines are not a mirror image of firms that experience ratings increases. Finally, I investigate the association between the disclosure ratings and quantitative disclosure characteristics. The results indicate significant associations, consistent with the assumption that easily accessible and quantifiable disclosure measures are captured in analysts’ ratings of disclosure quality. This thesis adds to the literature by providing insight into how analysts evaluate disclosure quality and what managers are willing and able to deliver. The research documents attributes of disclosure quality that are regarded as important by financial analysts. While analysts are a key set of financial statement users, there are many other types of users. By understanding disclosure quality from a user's perspective, regulators and researchers are more able to anticipate the implications of a proposed change in disclosure rules.

Cette thèse est composée de trois chapitres présentant le rôle et pouvoir de surveillance des analystes financiers sous trois perspectives différentes. Le premier chapitre est consacré au pouvoir de surveillance des analystes financiers sur le reporting financier. Plus précisément, j’étudie le contenu informatif et le pouvoir de surveillance des commentaires écrits par les analystes financiers sur la qualité des résultats comptables. Je mets en évidence que ces commentaires ont un effet marginal prédictif en ce qui concerne les retraitements comptables futurs et a un contenu informatif pour les investisseurs qui va au-delà des prévisions de résultat, de l’estimation du prix des actions, du cours cible, et des autres informations qualitatives contenues dans les rapports des analystes financiers. Les analyses complémentaires suggèrent que les réactions de marché suite à ces commentaires sont principalement induites par les commentaires négatifs et ceux traduisant un caractère certain. Par ailleurs, je trouve que les entreprises réduisent considérablement le niveau de leurs accruals discrétionnaires suite à la publication de commentaires négatifs, cette réduction n’est pas associée à une hausse de la manipulation des résultats financiers résultant d’actions réelles. Le deuxième s’intéresse aux questions suivantes : Est-ce que les analystes financiers ont un pouvoir de surveillance sur le reporting financier permettant de résoudre les problèmes d’agence liés à l’augmentation non justifiée des rémunérations des cadres dirigeants résultant de manipulations comptables. Je mets en avant que le pouvoir de surveillance des analystes financiers réduit les possibilités pour les cadres dirigeants de dissimuler aux administrateurs les manipulations comptables réalisées, permettant ainsi aux administrateurs d’ajuster plus facilement les rémunérations des cadres dirigeants le cas échéant. En accord avec cet argument, je trouve que les résultats comptables publiés sont moins prépondérants dans la détermination de la rémunération du PDG d’entreprises critiquées par les analystes financiers pour la faible qualité de leurs résultats comptables, mais seulement lorsque les administrateurs sont susceptibles d’être au courant de l’existence de rapports critiques. Les principaux résultats sont robustes lorsque les firmes sont appariées par performance et en contrôlant pour les effets fixes entreprises. Ces résultats ne sont pas induits par d’autres éléments textuels contenus dans les rapports d’analystes financiers. Des analyses complémentaires suggèrent que l’importance accordée aux résultats comptables diminue lorsque le montant des accruals s’écarte de la prévision des analystes. Le troisième s’intéresse aux effets des réformes réglementaires visant à accroître l’indépendance des analystes financiers sur le pouvoir de surveillance des analystes sur le reporting financier. La règle NASD 2711 exige des entreprises de courtage une séparation au niveau de leur structure entre leurs activités de banque d’investissement et celles de recherche sur les titres; dans le même temps, le Global Settlement demande aux banques participantes de financer les entreprises de recherche indépendantes à hauteur de 432,5 millions de dollars sur la période 2004 – 2009. Les résultats suggèrent une augmentation de l’efficience du pouvoir de surveillance des analystes financiers suite à l’introduction de ces réformes. Les analyses complémentaires mettent en avant que cette hausse est principalement induite par le Global Settlement. La robustesse des résultats est testée par l’utilisation de la méthode difference-in-difference utilisant des entreprises canadiennes comme groupe de contrôle. De plus, je mets en évidence un revirement de situation en ce qui concerne l’efficience du pouvoir de surveillance des analystes financiers suite à l’achèvement de la période de financement obligatoire de cinq années requise par le Global Settlement. / This dissertation consists of three chapters that present three standalone essays on the monitoring role of financial analysts. Chapter 1 investigates the monitoring role of financial analysts in the financial reporting process by examining the informativeness and monitoring effect of their written comments on earnings quality. I find that these comments have incremental predictability with respect to future accounting restatements, and convey information to investors beyond that in the earnings forecasts, stock ratings, price targets, and other qualitative text in analyst reports. Further analyses suggest that the market’s reaction to these comments is primarily driven by negative comments and comments written with certainty. In addition, controlling for accrual reversals, I find that firms significantly reduce the level of accruals-based earnings management after receiving negative comments, and this reduction is not accompanied by an increase in real activities management. Overall, the first chapter provides direct evidence on analysts’ monitoring role in financial reporting. Chapter 2 examines whether and how analysts’ monitoring of the financial reporting process alleviates a well-known agency problem in which a manager inflates her compensation by manipulating earnings. I argue that analysts’ monitoring reduces a manager’s ability to conceal earnings management from directors, thus facilitating directors’ adjustment of executive compensation in the presence of earnings management. Consistent with this argument, I find that earnings carry a lower weight in the determination of CEO compensation in firms that are criticized by analysts regarding earnings quality, but only when directors are likely to be aware of the critical analyst reports. The main findings are robust to matching on performance and controlling for firm-fixed effects and are not driven by other text in the analyst reports. Additional analyses suggest that the weight placed on earnings decreases as the actual accruals deviate from analysts’ accruals forecasts. Overall, the second chapter emphasizes analysts’ monitoring role in alleviating managerial rent extraction in executive compensation. Chapter 3 provides evidence on the impact of recent analyst independence reforms (the National Association of Securities Dealers [NASD] Rule 2711 and the companion New York Stock Exchange [NYSE] Rule 472 Amendment, and the Global Settlement) on analysts’ monitoring role in the financial reporting process. The NASD Rule 2711 requires brokerage firms to structurally separate investment banking from equity research; meanwhile, the Global Settlement mandates the participating banks to fund independent research firms to the amount of $432.5 million from 2004 to 2009. I find evidence consistent with an increase in analysts’ monitoring effectiveness following the reforms. Further analyses suggest that this increase is primarily driven by the Global Settlement, rather than by the adoption of NASD Rule 2711. The evidence is robust to a difference-in-difference specification with Canadian firms as the control group. Moreover, I document a reversal of the increase in monitoring effectiveness following the end of the Global Settlement’s five-year funding. Overall, the third chapter highlights the interaction between the monitoring role of financial analysts and the regulatory environment.

Regulators and the general public frequently advocate for higher-quality disclosure policies to reduce information asymmetry. Research and anecdotal evidence documents sizable benefits to firms that maintain high quality disclosure. This thesis explores the costs and benefits of changing disclosure quality from the perspective of the financial analysts, a sophisticated user group. This thesis presents a comprehensive view of analysts’ evaluations of disclosure quality. I investigate capital market reaction when firms experience a sustained decrease in analyst disclosure ratings. The results demonstrate that firms with deteriorating disclosure experience negative consequences, consistent with increasing information asymmetry. However, the magnitude is not as large as expected given the benefits enjoyed when disclosure quality improves. Given that firms that allow their disclosure quality to decline give up benefits they previously enjoy, I investigate why they allow this decline to occur. The deterioration is negatively associated with the interaction between capital demand and expected earnings performance implying that when firms require capital, but are expecting poor future earnings, they are more likely to permit a deterioration to occur. Declines are also associated with the occurrence of various disruptive events that imply greater uncertainty about the firm. These firms have a strong demand for external capital which they satisfy by accessing private and public debt markets. Overall, firms that experience disclosure ratings declines are not a mirror image of firms that experience ratings increases. Finally, I investigate the association between the disclosure ratings and quantitative disclosure characteristics. The results indicate significant associations, consistent with the assumption that easily accessible and quantifiable disclosure measures are captured in analysts’ ratings of disclosure quality. This thesis adds to the literature by providing insight into how analysts evaluate disclosure quality and what managers are willing and able to deliver. The research documents attributes of disclosure quality that are regarded as important by financial analysts. While analysts are a key set of financial statement users, there are many other types of users. By understanding disclosure quality from a user's perspective, regulators and researchers are more able to anticipate the implications of a proposed change in disclosure rules. / Business, Sauder School of / Graduate

Thesis (MBA)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: Although business analysis has been around for a number of years, it is still seen as an emerging field. There are various efforts underway to formalise the business analysis practice. For example, the International Institute of Business Analysis (IIBA®) is widely accepted as setting the standards for the business analysis practice as well as raising the profile of the role. The IIBA first published their Business Analysis Body of Knowledge guide (BABOK®) in 2006 and extensively revised it in 2009. The IIBA offer two certifications based on this guide. Besides the IIBA certifications, there are also other business analysis and requirements engineering certifications available to South Africans. However, these are not all that well known locally and collectively the number of certified business analysts is very low. The success rate of software projects to date has been relatively poor to say the least. Business analysis is a critical component to the success of software development. One would expect that business analysts would welcome the opportunity to be certified in their profession and contribute to increasing the overall project success rate. However, in South Africa the low number of IIBA certified business analysts suggests otherwise. There also appears to be very little pressure or even encouragement from employers of business analysts to pursue certification. Besides improving software project success, there is growing opinion and literature asserting the view that business analysts will be playing an ever-increasing strategic role from what should be a professional function. To enable this strategic role, business analysts are required to have the necessary experience, skill and ideally certification. This research report sought to uncover the reasons behind so few business analysts taking up certification. Over and above the reasons for the low uptake, this research report also aimed to assess the business analyst’s and the employer’s attitude towards certification and the business analysis profession. Collectively this led to a high-level assessment of the maturity of business analysis from a practitioner’s point of view. As part of this research report, a survey was conducted amongst practicing business analysts across industries within South Africa. Additional research was undertaken with a select number of senior leaders and executives in business to understand the organisational view of business analysis certification.

This study investigates a dynamic model of analyst forecasting where the ordering of forecasts and analysts' information endowments are endogenously determined. Analysts are probabilistically informed, potentially biased, and can increase their informedness through information acquisition. I characterize the unique equilibrium which holds for general distributions. The results show that analysts with less bias, greater precision, or a greater likelihood of being informed forecast earlier. Moreover, the main results show (perhaps surprisingly) that analysts always choose to be imperfectly informed, even though information acquisition is costless. This arises from the incentive to induce more timely forecasting by the other analyst. Likewise, analysts choose a positive bias level in equilibrium in order to gain a strategic advantage in their forecast timing. I discuss a number of empirical implications and extend the model to allow analysts to learn over time.

Prior research shows that when a firm uses an approach to innovation based on diverse, distant, and distinctive knowledge it can enhance its ability to develop innovations. However, less is known about how such an approach to innovation affects evaluations in financial markets by securities analysts and investors. In this dissertation I examine how a firm’s approach to innovation influences its ability to attract coverage and favorable recommendations from securities analysts. After considering the influence of innovation on analysts’ evaluations, I examine how analysts’ recommendations, in turn, influence a firm’s ability to attract investment. I argue that when a firm uses an approach to innovation based on diverse, distant, and distinctive knowledge it may complicate securities analysts’ efforts to evaluate its strategy, which may make them less willing to provide the firm with coverage and favorable recommendations. I also explore how disagreement among securities analysts’ recommendations may create opportunities for investors, which can ultimately help a firm to attract investment. This dissertation contributes to strategy research by highlighting an important trade-off related to a firm’s approach to innovation. Whereas prior research has shown that using diverse, distant, and distinctive knowledge helps a firm to develop knowledge-based resources, this research, in contrast, shows that such an approach to innovation may hinder efforts to capture value from these resources in financial markets. This research also contributes to the literature on financial intermediaries. It shows that financial markets are not fully intermediated by analysts’ recommendations and that uncertainty reflected in disagreement among analysts’ recommendations can signal valuable opportunities for investors that will make them more likely to buy shares in a firm. Furthermore, it also shows that characteristics of investors and aspects of a firm’s innovation strategy, which enhance investors’ ability to identify and profit from opportunities that arise under uncertainty, will make investors even more likely to buy shares when analysts disagree about their recommendations. / text

Gordon Binkerd (1916-2003) was an influential and well-known twentieth century composer. While his choral works are renowned worldwide, his piano music is rather unfamiliar to present-day scholars and performers. Binkerd’s Essays for the Piano (1976) is a set of six pieces that was greatly influenced by Brahms’ music. Especially noteworthy is the first piece of the set, titled “Intermezzo,” which is based on Brahms’ “Intermezzo” Op. 118, No. 1. The fact that Binkerd’s compositional procedures allow for a “recasting” of Brahms’ piece in a way that disguises the original source of his work are intriguing and call for further research on the topic. As such, the main purpose of this study is to analyze Binkerd’s modern transcription-style writing, and consequently examine how it incorporates a series of influences and compositional elements from Brahms’ music. This dissertation is divided into five chapters. The first chapter contains a general overview of piano works by Binkerd that incorporate quotations of works by other composers are addressed. These include Five Pieces for Piano, Suite for Piano: Five Fantasies (Nos. 2, 3, and 4), and the Piano Sonatas Nos. 1-3. The second chapter provides an analytical study of the fundamental structure found in Brahms’ Intermezzo, No. 1 from Sechs Klavierstücke, Op. 118 The third chapter equally analyzes the fundamental structure of Binkerd’s “Intermezzo,” No. 1 from Essays for the Piano. The fourth chapter consists of a comparative study of the findings in Chapter 3, as they relate to both Brahms’ and Binkerd’s intermezzi. The fifth and final chapter is a conclusion.

Financial analysts play a key role in collecting, processing and disseminating information for the stock market. Selecting the best analysts among thousands of analysts is an important task for investors that determines future investment profitability. Extensive research has been dedicated to finding the best analysts of the market based on various criteria for different clienteles. The state of the art approach in this process has developed into so-called Star Rankings with lists of top analysts who have previously outperformed their peers. How useful are such star rankings? Do the recommendations of stars have higher investment value than the recommendations of non-stars (i.e., recommendations of Stars “shoot” more precisely before and after selection)? Or do star rankings simply represent the past performance that will regress to the mean in the future (i.e., in reality, Shooting Stars are not stars and quickly disappear from the sky)? The aim of this Ph.D. thesis is to empirically investigate the performance of sell-side analysts’ recommendations by focusing on a group of star analysts. This thesis comprises four papers that address two overarching questions. (1) Do star rankings capture any true skill, and, thus, can investors rely on the rankings? (Papers I and II) (2) How do market conditions impact star analysts? (Papers III and IV) Paper I examines the profitability persistence of the investment recommendations from analysts who are listed in the four different star rankings of Institutional Investor magazine, StarMine’s “Top Earnings Estimators”, “Top Stock Pickers” and The Wall Street Journal and shows the predictive power of each evaluation methodology. By investigating the precision of the signals that the various methodologies use in determining who the stars are, the study distinguishes between the star-selection methodologies that capture short-term stock-picking profitability and the methodologies that emphasize the more persistent skills of star analysts. As a result, this study documents that there are star-selection methods that select analysts based on more enduring analyst skills, and, thus, the performance of these methods’ stars persists even after ranking announcements. The results indicate that the choice of analyst ranking is economically important in making investment decisions. Paper II investigates the structure of the portfolios that are built on the recommendations of sell-side analysts and confirms that the abnormal returns are explained primarily by analysts’ stock-picking ability and only partially by the effect of over-weight in small-cap stocks. The study examines the number of stocks in the portfolios and the weights that are assigned to market-cap size deciles and GICS sectors and performs an attribution analysis that identifies the sources of overall value-added performance. Paper III examines the differences in seasonal patterns in the expected returns on target prices between star and non-star analysts. Although the market returns in the sample period do not possess any of the investigated seasonal effects, the results show that both groups of analysts, stars and non-stars, exhibit seasonal patterns and issue more optimistic target prices during the summer, with non-stars being more optimistic than stars. Interestingly, the results show that analysts are highly optimistic in May, which contradicts the adage “Sell in May and go away” but is consistent with the notion of a trade-generating hypothesis: since analysts face a conflict of interests, they may issue biased recommendations and target prices to generate a trade. A detailed analysis reveals that the optimism cycle is related to the calendar of companies’ earnings announcements rather than the market-specific effects. Paper IV discusses how a shift in economic conditions affects the competitiveness of sell-side analysts. The focus is on the changes that were triggered by the financial crisis of 2007-2009 and a post-crisis “uncertainty” period from 2010-2013. The study follows Bagnoli et al. (2008) in using a change in the turnover of rankings as a measure of a transformation in analysts’ competitive advantages. Paper IV extends their research and documents how different ranking systems capture analysts’ ability to handle changes in the economic environment. The results show that market conditions impact analyst groups differently, depending on the group’s competitive advantages. / <p>QC 20170412</p> / European Doctorate in Industrial Management

Previous research finds some evidence that analysts affiliated with equity underwriters issue more optimistic earnings growth forecasts and optimistic recommendations of client stock than unaffiliated analysts. Unfortunately, these studies are unable to discriminate between three competing hypotheses for the apparent optimism. Under the bribery hypothesis, underwriting clients, with the promise of underwriting fees, coax analysts to compromise their objectivity. The execution-related conflict of hypothesis postulates that the investment banks employing analysts who are more bullish on a particular stock are better able to execute the deal, and so the banks pressure their analysts to be bullish in order to enhance their execution ability. Finally, the selection bias hypothesis postulates that analysts are objective, but because of the enhanced execution ability, banks with more optimistic analysts are more likely to get selected as underwriters. We test these hypotheses in a previously unexplored setting, namely M&A activities. Depending on whether an analyst is affiliated with the target or the acquirer and whether the analyst report is about the target or the acquirer, the hypotheses predict analyst optimism in some cases and pessimism in other. Therefore, examining the issue of analyst bias in the M&A context allows us to shed some light on alternative explanations for the impact of analyst affiliation on the properties of analyst forecasts and recommendations.