Ola Nilsson

The Regulatory Effect on the Performance of Financial Analysts : Time Series from Two different Legal Systems

The focus of this paper is the relationship between regulatory settings and financial analysts’ performance, which is examined by studying the level of shareholder protection and the performance of financial analysts in two countries with different legal origins. By using a newly constructed index to measure shareholder protection, we are able to analyze how changes in shareholder protection over time can affect analysts’ performance. By comparing two countries with different legal traditions (the United Kingdom (UK) and Sweden), we are also able to assess whether the underlying legal origin is an influential factor. The results show that increased shareholder protection improves forecast accuracy in both the UK and Sweden, supporting the idea that stronger shareholder protection regulations improve analysts’ performance whether the legal context is rooted in common law or Scandinavian civil law tradition. The findings also indicate that strengthened shareholder protection decreases forecast dispersion in Sweden and forecast bias in the UK, further supporting the idea that stronger shareholder protection improves analysts’ performance even though the results differed across legal contexts. We did, however, find a substitution effect in both countries: Strengthened shareholder protection makes analysts’ services less valuable to investors, thus leading to a reduction in the number of analysts. Our main conclusion is that changes in shareholder protection affect the performance of analysts irrespective of the country’s legal origin, i.e. common law or Scandinavian civil law. However, legal origin seems to have an impact on the magnitude of analysts’ performance based on changes in shareholder protection.

The impact of firm-level shareholder protections on abnormal returns on insider trading

This study is the first to investigate the relationship between firm-level shareholder protections and abnormal returns on insider trading. We thereby extend the few studies that have analysed insider trading from a shareholder protection perspective. The novelty of this study is its concentration on firm-level shareholder protection. Our results show that firmlevel shareholder protections have a significantly positive impact on abnormal returns on insider purchases, indicating that firm-level shareholder protection is more influential than country-level shareholder protection. We found support that the information content hypothesis is valid for explanation of abnormal return on insider trading, which is in line with earlier studies. This result is an indication that insider purchases in firms that have adopt strict corporate governance rules are viewed by the market as trustworthy leading to positive market reactions on insider trading.