If you’re not a stock analyst, or a manager of such, there’s not much here for you today.
If you’re either of the above though the paper highlighted adds usefully to the debate about whether or not company visits are worth the effort.
To recap; there are two schools of thought on this.
Some argue analysis is best conducted in the ‘clean’ environment of desk due diligence alone and that contact with company managements can lead to dangerous heuristic bias.
The other view is that seeing is believing and useful insights are gained by visits to a company’s facilities and maintaining a regular dialogue with the company’s representatives.
So which is it?
Data from Shenzhen listed companies helps towards an answer. Since 2009 these companies have been required to flag when they’ve received visits from analysts. Since 2012 they’ve had to disclose this information, to include the who, when, where and what (about) within two days of such a visit.
Using this information Yi Ru from the Renmin University and collaborators from the University of Texas and the Harvard Business School conclude there are benefits from analyst company visits; but not perhaps the ones you’d obviously assume.
What seems to happen is that a published company visit by Ms. Diligent, analyst A, prompts Mr. Slacker, analyst B, to do more work on industry peers. In this process there’s a positive ‘spill-over’ effect on peer firm informational efficiency from which the market as a whole is a beneficiary.
So the first argument remains unsettled. It seems analysts visits improve market informational efficiency but this benefit can be enjoyed by all without the faff of the schlepps.
I think I’d rather sit next to Ms. Diligent than Mr. Slacker at a dinner party though. She’s likely to be far more entertaining company!
Happy Sunday.
You can access the paper in full via the following link Efficacy of Corporate Site Visits