Seeking Out Non-Public Information: Sell-Side Analysts and the Freedom of Information Act
The Accounting Review, forthcoming
50 Pages Posted: 14 Jan 2016 Last revised: 7 Dec 2019
Date Written: January 1, 2019
A number of sell-side healthcare analysts gain access to information outside the purview of management through Freedom of Information Act requests to the Food and Drug Administration for records on factory inspections, complaints, and drug and medical device applications. Using a difference-in-differences methodology, we find that buy (sell) recommendations and upgrades (downgrades) earn higher (lower) stock returns over the year following the receipt of FDA records. We also examine the type of information revealed in FDA factory inspection reports, and find that analysts are less likely to downgrade and are less pessimistic in their recommendations than the consensus recommendation when the information contained in the FDA report is not particularly severe. Our findings are consistent with a subset of analysts utilizing non-public information channels independent of management to gain value-relevant information about their covered firms.
Keywords: Sell-side analysts, Non-public information, Freedom of Information Act, Stock recommendations
JEL Classification: G14, G24, D82, D83
Suggested Citation: Suggested Citation