Michael B. Clement

Brand Values and Capital Market Valuation

Brand value estimates are significantly positively related to prices and returns, incremental to accounting variables. Questionable brand value estimate reliability underlies lack of financial statement recognition for brands. Findings suggest estimates are relevant and sufficiently reliable to be reflected in share prices. Simultaneous equations estimation reveals inferences are unaffected by potential bias resulting from simultaneity between brand value estimates and equity market value. Brand value estimates are positively associated with advertising expense, operating margin, and market share. Yet, brand value estimates provide significant explanatory power for prices incremental to these variables, and to recognized brand assets and analysts earnings forecasts.

Inside the 'Black Box' of Sell-Side Financial Analysts

Our objective is to penetrate the “black box” of sell-side financial analysts by providing new insights into the inputs analysts use and the incentives they face. We survey 365 analysts and conduct 18 follow-up interviews covering a wide range of topics, including the inputs to analysts’ earnings forecasts and stock recommendations, the value of their industry knowledge, the determinants of their compensation, the career benefits of Institutional Investor All-Star status, and the factors they consider indicative of high-quality earnings. One important finding is that private communication with management is a more useful input to analysts’ earnings forecasts and stock recommendations than their own primary research, recent earnings performance, and recent 10-K and 10-Q reports. Another notable finding is that issuing earnings forecasts and stock recommendations that are well below the consensus often leads to an increase in analysts’ credibility with their investing clients. We conduct cross-sectional analyses that highlight the impact of analyst and brokerage characteristics on analysts’ inputs and incentives. Our findings are relevant to investors, managers, analysts, and academic researchers.

Around-the-Clock Media Coverage and the Timing of Earnings Announcements

We reexamine the descriptive ability of the conventional wisdom that earnings announcements made after trading and on Friday are dominated by bad news in light of the 24/7 media coverage and other technological changes of the 1990’s. We find that the change in media coverage has facilitated a significant change in earnings announcement times: only 27% of earnings announcements are now made during trading as opposed to 67% in prior research. However, our finding of continued dominance of bad news in Friday announcements in particular strongly suggests that the conventional wisdom is not solely the result of managers’ desire to take advantage of limited media coverage. Instead, managers appear to be taking advantage of other aspects of investors’ behavior, such as their anticipating negative Friday announcements earlier in the week, and the relatively quiet (in terms of trading) weekend period to manage stock price responses to their companies’ financial news.

The Influence of Culture and Corporate Governance on the Characteristics that Distinguish Superior Analysts

We identify characteristics of financial analysts that have been shown to be associated with relative forecast accuracy in the United States and examine these characteristics within 10 countries. We find that relative forecast accuracy is influenced by years of experience, size of the analysts employer, and frequency of forecast issuance for many of these countries and show that the significance of experience and employer is conditional on the type of culture and corporate governance of the country.

Labor Market Dynamics and Analyst Ability

We examine whether brokerage firms can identify differences in innate ability when hiring analysts. When the local unemployment rate is high, there will be a larger pool of job candidates per analyst job. If brokerage houses are able to identify differences in ability, analysts hired during these challenging times should have higher ability than those hired at other times. Using local unemployment rate as a proxy for the supply of analysts, we find that analysts who are hired when the local unemployment rate is high are more likely to be elected all-star analysts, and obtain more all-star awards than analysts who are hired at other times. However, these high-ability analysts, who otherwise might not have chosen analysts as a profession, are more likely to leave the profession when local labor market conditions subsequently improve.