Research Finds CEOs Give Preferential Treatment to Analysts with Same First Name
Although sharing a first name with someone can create a bond, it may also give rise to illegal behavior. New research finds that company CEOs appear to give preferential treatment to securities analysts with the same first name.
The study suggests that name matching among securities analysts and CEOs may led to unfair favoritism, even prompting some chief executives to disclose privileged company information with select analysts. While CEOs typically share forecasts with analysts and investors on public conference calls and the like, securities law bars executives from sharing material information privately.
According to a group of researchers from various universities, the improved accuracy of financial forecasts by securities analysts may be due to CEOs privately sharing relevant information with analysts who have the same name. The researchers, from the University of California, Berkeley, University of California, Los Angeles, Chinese University of Hong Kong-Shenzhen, and Washington University in St. Louis, found that this effect is even more pronounced among CEO-analyst pairs who share uncommon first names.
"After you get main results, you try to see if the relationship will be either stronger or weaker. One theory we came up with is the more uncommon the first name, the stronger the relationship between them," said Omri Even-Tov, an accounting professor at University of California, Berkeley, Haas School of Business and one of the researchers. He added, "If you have a very unique name, you probably feel more connected and more willing to share information."
Illegal but hard to control
The researchers also discovered that the accuracy of analysts' financial forecasts decreased over time. "Over time they have multiple interactions. It's not a one-time event. The analyst usually covers a company for a period of time and the CEO stays there," explained Even-Tov.
Furthermore, when a CEO was replaced by a new leader with a different name, analysts' forecasts became less accurate, supporting the researchers' theory that illegal information sharing occurs. "That confirms results are driven by this commonality," Even-Tov stated.
This type of confidential data sharing is against the law, but difficult to control, he pointed out. CEOs are obligated by disclosure regulations to publicly disclose any information that is shared with an analyst.
"Enforcing this is challenging because there are no surveillance cameras in the various meetings held between CEOs and analysts," he explained.
