We examine the participation of analysts from different buy-side institutions (hedge funds, mutual funds, and RIAs) in public earnings conference calls and the associated capital market implications. Using 81,652 conference call transcripts for 3346 companies from 2007 to 2016, we find that buy-side analysts ask questions on approximately 18% of calls. Relative to sell-side analysts, buy-side analysts' interactions with management are shorter, convey less favorable tone, and exhibit more uncertainty. Buy-side activity on earnings calls is also associated with subsequent reductions in sell-side coverage, and buy-side tone is associated with sell-side analysts' price target revisions after the call. Importantly, our findings suggest that buy-side analysts representing a hedge fund play an important and unique role on conference calls. Specifically, hedge fund analysts represent nearly half (47%) of all buy-side appearances. In addition, when short interest in the firm is high, analysts representing a hedge fund are less likely to be permitted to ask the first question on the call, to ask lengthy questions, or to ask additional follow-up questions. Relatedly, relative to other buy-side analysts, the information conveyed by hedge fund analysts during the call is more strongly associated with both stock returns and investor uncertainty following the call.

We investigate variation in information production by sell‐side analysts and its potential role in hedge fund activist intervention, an important external corporate governance mechanism that creates shareholder value. Using textual analysis to derive an activism dictionary from intervention objectives and tactics, we find substantially more activism content in pre‐intervention analyst reports of target firms than propensity score matched control firms. Activism content is associated with more detailed reports containing more quantitative information. Target firm intervention‐date stock returns are significantly higher when activist intention (13D) filings are supported by reports with more general and objective‐specific activism content. Of activists' public letters to stakeholders, 31.9% directly mention sell‐side analysis, amplifying the association between target returns and analyst report information. The relationship between analyst information and activism returns is robust to using brokerage closures as an exogenous shock and is consistent with analyst incentives. Activist funds with no prior disclosed position in target firms and more experienced funds capture higher returns from sell‐side information. Overall, our results suggest sell‐side analysts play a significant informational role in supporting hedge fund activism.

Using European stock data from two different venues and time periods for which we can identify each trade's aggressor, we test the performance of the bulk volume classification (Easley et al. (2016); BVC) algorithm. BVC is data efficient, but may identify trade aggressors less accurately than “bulk” versions of traditional trade-level algorithms. BVC-estimated trade flow is the only algorithm related to proxies of informed trading, however. This is because traditional algorithms are designed to find individual trade aggressors, but we find that trade aggressor no longer captures information. Finally, we find that after calibrating BVC to trading characteristics in out-of-sample data, it is better able to detect information and to identify trade aggressors. In the new era of fast trading, sophisticated investors, and smart order execution, BVC appears to be the most versatile algorithm.

Using Roberts (2015) loan-level data from 2000 to 2011, we find that the inception of CDS trading on reference firms’ debt is associated with a decreased number and lower probability of amendments, restatements, and rollovers to existing lenders of bank loans. Reference firms are also less likely to terminate loans prematurely or refinance with different lenders after the inception of CDS trading and tend to exhibit longer loan maturities. Our evidence is consistent with the empty creditor problem arising from CDS trading and the resulting decrease in the negotiation power of borrowers. Our research contributes to understanding how financial innovations alter bank-lending relationships.

We study the New York City taxi market to examine whether an excise tax hike on cigarettes corresponds to smoker taxi drivers more frequently cheating their customers. Increased cheating could be motivated by both financial pressures and as a reaction to unfair treatment (as surveyed smokers view cigarette tax hikes as quite unfair). We examine this question using detailed ride-level data where we can identify a rare but fraudulent overcharging technique (cheating) and a subsample of taxi drivers who smoke (affected taxpayers, identified via tickets for smoking in a cab). In difference-in-differences regressions we find that following a cigarette tax hike, taxi drivers who smoke are approximately 1.5 times more likely to cheat customers than other drivers. Our findings are strongest in the subsample of smokers with consistently low earnings.