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Apparently you don’t have to be friends with a Goldman Sachs director to get an inside scoop.
A survey by Rotterdam School of Management at Erasmus University found 47% of analysts and portfolio managers regularly receive material information about companies in meetings with executives.
Material information is typically defined as information that would affect a company’s share price such as a reorganization, merger or acquisition.
About 400 global investors including sell-side and buy-side analysts and portfolio managers were asked about their experiences in one-on-one talks held with company executives.
These meetings, while important to investors and analysts who say it gives them a chance to “look management in the eye, can sometimes set the stage for share-sensitive information to be disclosed by executives.
The investors and analysts surveyed say the material information they’ve received is sometimes offered unintentionally but not always.
Dr. Erik Roelofsen, a director at PricewaterhouseCoopers and head researcher on the study, notes that the boundary between what is and isn’t price-sensitive information can be vague.
“In his analysis of a certain market, a corporate executive can give off clear signals about an imminent reorganization within his company that has not yet been made public, without his analysis itself being price-sensitive. On top of that, investors and analysts are able to make tidbits of information that are not price-sensitive by themselves slightly price-sensitive by analyzing them. Of course, the latter is permitted,” he notes in the study
However, if a company tries to influence that external analysis then that’s a “grey area” of disclosing share-sensitive information, Roelofsen says.
“We not only have investors and analysts on record conceding that material information is often given out, but there is also the suggestive fact that the brokers who have put together the meetings are regularly requested to leave the room as soon as the talks with the investors commence,” the study says.
For what it’s worth, U.S. executives appear to have the best track record for abiding by the rules in these one-on-one meetings with investors. The percentage of investors who said they’ve received material information during such meetings is 8 percentage points lower than the global average.
Roelofsen credits the lower percentage in the U.S. to strict regulations on releasing material information.
In contrast, the percentage in Asia is 10% higher than the global figure and is attributable to “a generally lower level of transparency in the public disclosures in some some Asian countries, making investors more dependent on one-on-ones.”
source: forbes.com
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