Essays on Financial Analysts

Thesis Defense
Essays on Financial Analysts

Mahn Hiep Nguyen, PhD candidate in the PhD programme ESCP, publicly defended his PhD thesis in Management Sciences.

10 July 2020
ESCP Business School Campus République

Abstract

Financial analysts play an important role in capital markets. Through the issuance of analysis reports, they facilitate the incorporation of costly private information into security prices, supporting the informational efficiency of financial markets.

Thus, understanding their behavior has important implications for firms, investors, and policy makers. Despite decades of work, there are still many open questions regarding how financial analysts produce and how these reports are influenced by their working environment.

In this dissertation, we attempt at contributing to the literature of analyst behavior and its effects on the capital market by addressing several new research questions. The first two papers of this thesis try to better understand the incentives behind the well-known analyst bias and identify new soucres of bias. The third paper extends into an analysis of corporate governance and the role of financial analysts in alleviating information asymmetry.

The first paper compares analysts affiliated with debt underwriters to analysts affiliated with equity underwriters. We focus on the differences in target prices and recommendations and demonstrate that while equity underwriter analysts are significantly more optimistic in their target prices and recommendations, analysts affiliated with debt underwriters do not exhibit the same bias. While the prominent view in the literature is that equity underwriter analysts are more optimistic to nurture business relationships with the followed firms, the finding that analysts affiliated with debt underwriters behave differently is not consistent with this hypothesis and sheds new light on the different conflicts of interest that influence stock analysts' reporting behavior.

In the second paper, we show that analysts whose employers own a stake in the followed firms issue significantly more optimistic target prices and recommendations. Their recommendation upgrades underperform those of their peers by 0.8% in a two-month window. The difference in optimism between owner and non-owner analysts are even larger in the times of market downturn. These results highlight the conflicts of interest inherent in the analysts whose employers own the followed firms’ stocks.

The third paper looks more closely at the quality of corporate governance and the mediating effect of analyst coverage. We show that excessive compensation of outside directors is associated with bad-news hoarding and stock price crash risk. This relationship is largely attributed to excessive stock-based compensation, but not cash compensation. These findings cast doubts on the effectiveness of stock-based compensation in aligning the incentives of directors with shareholders' interest. In addition, we find that firms followed by more analysts have lower risk of stock price crashes associated with bad-news hoarding.;

Jury

Supervisor:

Mr Michael Troege,
Professor, ESCP Business School

Referees:

Mrs Édith Ginglinger,
Professor, Université Paris Dauphine - PSL
Mrs Anne-Gaël Vaubourg,
Professor, Université de Poitiers

Suffragants:

Mrs Alberta Di Giuli,
Professor, ESCP Business School
Mr Joël Metais,
Professor Emeritus, Université Paris Dauphine - PSL

Campuses

Paris

Study shows Angela Merkel needs to create a unified digital strategy for Europe during her Council Presidency

European heads of state and governments’ approach to digitisation varies widely. This is one of the main findings of the first ever Digital Engagement Report, an in-depth analysis of all 27 European leaders’ digital priorities published by ESCP’s European Center for Digital Competitiveness.

The aim of the Digital Engagement Report is to highlight the importance of European leaders in the digital transformation of their countries, as well as to investigate which digitalisation issues they address.

The first ever report of this kind, it shows that European heads of state and governments approach digitalisation with very different priorities: Estonia, Germany, France, the Netherlands and Luxemburg have the most active leaders while Poland, Italy, Bulgaria, Hungary and Slovenia have the least active.

The Digital Engagement Report also shows that digital technologies have varying importance throughout Europe: In 2019, Estonia’s Jüri Ratas spent over five times more time on the topic than Slovenia’s Marjan Sarec or Hungary’s Victor Orbán. Also, there is no harmonized European approach to digital technologies, with every country setting its own agenda. Key future technologies, such as quantum computing and robotics, are disregarded by most European heads of state and governments.

European leaders have clear topic-focused profiles
Detailed engagement profiles for each European leader, which are available here as well as a summary of the Digital Engagement Report, show for instance that Angela Merkel focuses mostly on digital infrastructure while neglecting the topic of entrepreneurship. Emmanuel Macron, on the other hand, puts artificial intelligence and entrepreneurship in the spotlight.

Europe needs a common strategy for digital technologies
“Digitisation in Europe is still like a patchwork quilt,” explains European Center for Digital Competitiveness by ESCP Business School Founder & Director, Professor Philip Meissner. “How well Europe is able to position itself in terms of digital technologies will determine its future economic power and geopolitical position. We need a uniform and powerful approach to drive this topic throughout Europe. In a nutshell, we need a digital strategy for Europe with key elements like entrepreneurship and digital education.”
“Given the size of the challenge and the speed of technological progress, we need uniform European priorities to finally enable large-scale investments in future technologies,” adds fellow European Center for Digital Competitiveness Founder & Director Christian Poensgen. “Europe must act now.”

About the Digital Engagement Report 2020
The Digital Engagement Report is based on a Digital Engagement Index, which evaluates European leaders’ digital activities in 2019. The Digital Engagement Index is compiled from a variety of publicly available information from governments themselves, from the press and personal reports on the Twitter social media platform. These digital activities were then classified according to the type of interaction (conferences, private sector meetings, political meetings and press conferences) and according to their focus (5G, artificial intelligence, Blockchain, cloud computing, cyber security, digital education, e-government, entrepreneurship, gaming/e-sports, industry 4.0, mobility, quantum computing and robotics).

Campuses

Berlin

Abstract

With the transition to liquid modernity, and the acceleration of society due to the high production and consumption of new content through new media technologies such as social media, social hierarchies seem to be more fragmented, unstable, ephemeral and changing.

The liquidification of society thus allows for new forms of status games and distinction that are not necessarily tied to family history or level of education. Indeed, this can be seen in the rise of a ‘new elite’, who, contrary to the old elite that was primarily defined by their economic capital, is defined by the acquisition of knowledge and culture.

To this end, research still needs to be done to uncover new forms of luxury consumption practices in a digitalized and liquid society, taking place on social media platforms. To address this gap, this thesis therefore looks at the luxury consumption practices of the specific segment of high-end luxury consumers (prosumers), as well as their social media. Specifically, it looks at how these define, display and consume luxury on the visual social media platform called Instagram.

Article 1 explores, through a content analysis and netnography, how wealthy micro-celebrities use personal branding strategies to create and display luxury meaning on Instagram.

Article 2 further explores findings from Article 1, by interviewing and analyzing Instagram data of wealthy social media influencers, to understand how they now view luxury and what kind of strategies they use on Instagram to justify their luxurious lifestyle as being ‘ethical’ – as opposed to other influencers who exhibit unethical consumer behavior by displaying an overly conspicuous, wasteful form of luxury.

Article 3 takes a different approach by investigating how lurkers, as opposed to prosumers (Article 1 & 2), digitally and virtually consume luxury related content on Instagram.;

This thesis by articles has a threefold contribution to the literature:

(1) to expand theoretical understanding of new conspicuous consumption strategies of upperclass (or elite) consumers in asserting their social status and distinction online,

(2) to better understand the dematerialization of luxury and stressing how consumption experiences, rather than the ownership of products, are thus considered to be status symbols,

(3) to highlight the contribution to growing literature on morality in luxury consumption, showing that old elite individuals pursue both distinction-seeking, and at the same time authenticity-seeking when portraying themselves publicly.

Jury