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

See all articles by April Klein

April Klein

New York University (NYU) - Department of Accounting

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

Bobo Zhang

NEOMA Business School - Department of Finance

Date Written: January 1, 2019

Abstract

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

Klein, April and Li, Tao and Zhang, Bobo, Seeking Out Non-Public Information: Sell-Side Analysts and the Freedom of Information Act (January 1, 2019). The Accounting Review, forthcoming. Available at SSRN: https://ssrn.com/abstract=2714551 or http://dx.doi.org/10.2139/ssrn.2714551

April Klein (Contact Author)

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

Bobo Zhang

NEOMA Business School - Department of Finance ( email )

Finance Department
NEOMA Business School
Reims, 51100
France

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