The Dark Side of Investor Conferences

Investor conferences are an important component of a firm’s investor relations efforts. Conferences provide managers with the opportunity for face-to-face interactions with investors and analysts. Managers can use these interactions to increase firm visibility and shape external perceptions of the firm’s business operations and strategy. Prior academic research finds that conferences are important information events that are accompanied by positive price and volume reactions, increases in institutional investor and analyst following, and improvements in liquidity. The research does not, however, examine whether these conferences – or investor relations activities more broadly – facilitate managerial opportunism. In a new  paper, we examine whether investor conferences are accompanied by one particular form of managerial opportunism: “hyping” the stock to sell shares at inflated prices.

Three aspects of investor conferences suggest that they could facilitate managerial opportunism:

(1) Conferences are high-visibility events during which managers take a wide range of questions from current and prospective investors and analysts. In the weeks leading up to a conference, managers have the opportunity to “frame the narrative” and provide disclosure to favorably skew conference interactions and potential questions from analysts and investors.

(2) Conferences are scheduled in advance. Managers know the contents of their planned remarks and thus potentially have material non-public information (depending on what they intend to reveal at the conference).

(3) Unlike earnings announcements and periodic SEC disclosures, investor conferences are typically NOT accompanied by trading blackouts to prevent corporate insiders from selling their shares. Indeed, consistent with an absence of trading blackouts, we find a pronounced increase in the trading volume of corporate officers immediately prior to presentations at investor conferences.

Given these unique aspects of investor conferences, we examine whether some managers exploit the heightened attention around the conferences to hype the stock and sell shares at inflated prices.

In our first set of tests, we use a standard short-window event study to examine managers’ disclosure choices prior to the conference. Consistent with our predictions, we find an increase in management forecasts, voluntary 8-Ks, and firm-initiated press releases during the 10 days immediately prior to the conference presentation and a reduction in voluntary disclosure immediately after the presentation. We find that the pre-conference disclosures tend to increase stock prices (i.e., are “good news”) and that the positive market reaction to pre-conference disclosures exceeds that of post-conference disclosures.

In our second set of tests, we examine managers’ incentives for pre-conference disclosures and any attendant (temporary) increase in stock prices. Managers can directly benefit from an increase in share price by selling their shares. Accordingly, we use a standard short-window event study to examine insiders’ stock sales around the conference and how these sales relate to pre-conference disclosures. Consistent with our predictions, we find a pronounced increase in insider selling prior to the conference presentation and that the level of insider selling relates to the pre-conference disclosures. This finding is inconsistent with liquidity or litigation risk motivations for insider selling, which would predict greater insider selling after the scheduled corporate event, when the manager has just disclosed any new information. Among firms where insiders are selling (not selling) 10 days prior to the conference presentation, pre-conference disclosures on average increase prices by 1 percent (–0.13 percent). These results are consistent with managers exploiting the positive reaction to pre-conference disclosures to sell their shares.

Finally, in our third set of tests, we examine patterns in stock prices pre- and post-conference. If our evidence of both increased pre-conference disclosure and insider selling is indicative of hype, and inflated equity prices, then we expect to observe a run-up in prices before the conference and a reversal and decline in prices following the conference. Consistent with this, we find evidence that stock returns reverse following the conference in firms where managers are both (i) issuing positive pre-conference disclosure and (ii) selling their shares. In these firms, we find large positive market-adjusted returns prior to the conference and significantly negative returns after the conference (including at the next earnings announcement). Thus, by timing their stock sales to coincide with positive pre-conference disclosures, managers are able to sell their shares at inflated pre-conference prices and avoid the subsequent price correction following the conference.

Collectively, our results are consistent with some managers releasing voluntary disclosure prior to the conference that temporarily inflates share price, selling their shares to take advantage of temporarily inflated prices, and prices reversing over the next six months. These findings provide novel evidence of managerial opportunism and the potential for agency costs in connection with investor conferences and suggest a more nuanced understanding of investor relations activities. Our findings underscore that managers can use investor relations activities as an opportunity to hype the stock.

This post comes to us from professors Brian J. Bushee, Daniel J. Taylor, and Christina Zhu at The Wharton School, University of Pennsylvania. It is based on their recent article, “The Dark Side of Investor Conferences: Evidence of Managerial Opportunism,” available here.


    • Matthew Greene

      As can be easily seen in the linked paper, the sample was 3.7 million firm-days, with 122,449 presentations by 5,390 firms.

      Additionally, you would see that “results . . . suggest . . . managers of large firms with high analyst coverage are more likely to engage in hype.”

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