One of the issues which has evolved over the past decade is
that of fair disclosure. With the implementation of Regulation Fair Disclosure
(Reg FD), IR professionals have had to battle with the issue of trying to remain legal
throughout all of their reporting to investors. While Reg FD has tried to level
the playing ground by ensuring all investors have access to the same
information, a recent study undertaken by David H. Solomon from the University
of Southern California and Eugene Soltes from the Harvard Business School
titled; “What Are we Meeting For? The Consequences of Private Meetings with Investors” suggests that this may not be the case.
The paper
looked at records from a NYSE traded firm over a six-year period during which
there were over 900 meetings in order to see whether or not the meetings were
associated with the trades and whether people made more informed trades after a
private meeting with the firm. The authors of the study found that funds that
met in private meetings with the firm were able to get higher returns than
those that did not meet. “When the trades of funds are aggregated, a one
standard deviation increase in purchases by funds who met with management
predicts an increase in stock returns of 3.7% over the following month” state
the authors, “By contrast, the trades of funds who did not meet with management
show little predictive power for future stock returns.”
This data is
quite interesting and suggests the Reg FD may not cover all the bases. While
the authors do state that it is possible that some investors are simply better
able to process information, however it is still very clear that private
meetings provide a great benefit to investors, who according to the authors
were able to trade much more successfully in the time period after a private
meeting with the firm.
As an
article from irwebreport states, private meetings are often arranged through things such as bus tours
with the more active trading clients. Information from these meetings is often
hard to come by because many times it is not kept on record for “liability”
reasons.
Overall, I
would say that there is a clear correlation between a private meeting with an
investor and more successful trades, but I cannot say that it is very clear why
this is. I would be hesitant to state that those investors who met privately
are violating Reg FD and receiving an unfair advantage because we simply do not
always know what was stated in those one on one meetings.
It could be
that these investors are simply better at looking into what they hear in these
meetings, however it is very hard to tell without actually seeing the meeting
live in order to know exactly what was discussed. I think that the best course
of action moving forward would be to require any private meeting to be
documented via video or audio, kept on record, and made public. This change
would settle any and all claims of unfair play because if as an investor who
was not at the meeting, you still have access to it you have all the same
answers that the people at the meeting are providing.
