How Analysts Process Information: Technical and Financial Disclosures in the Microprocessor Industry

Abstract

Following Bradshaw (‘Analyst information processing, financial regulation, and academic research’ [2009], and Analysts' forecasts: What do we know after decades of work? [2011]), this paper examines how analysts process information, particularly in an information environment characterised by multiple and potentially complementary information sources. The setting is the microprocessor industry, one in which technical information is particularly significant and complex to digest. Based on 3837 analyst earnings-forecast revisions, issued by 134 analysts, we examine quantitatively the speed, magnitude, and information content of the reactions of individual analysts and subgroups of analysts to both periodic and timely technical disclosures, and as a complement to periodic financial disclosure. We find that analysts are much slower to react to timely technical disclosures than they are to periodic financial disclosures. We find also that technical and financial disclosures complement each other. Furthermore, we find that there is a ‘hierarchy’ of analysts in this particular industry, as evidenced through the strength of reaction to timely technical disclosures. Finally, we find that lower speed in reacting to timely technical disclosures and a higher intensity in the use of timely technical disclosure (in conjunction with periodic financial disclosure) result in greater accuracy, and that more experienced analysts tend to be less accurate. We suggest that the findings may have implications for other industries such as Bio-Tech Pharma.     

An Ontological Turn in Categories Research: From Standards of Legitimacy to Evidence of Actuality

In this Counterpoint to Durand and Paolella, we argue that prior work on categories has neglected processes of category emergence and dissolution. In response, we call for studies of categories that focus on how they emerge and fall out of use and on what they come to mean. We call this an ontological turn in categories research because systems of categorization and their associated meanings capture and reflect what societies view as social realities, or ontologies. As a guide to this broad topic, we develop a framework that relates the effects of categories to the familiarity of (1) occasions and motivations for their usage and (2) meanings and ontologies they carry, and we use this framework to elaborate two paths by which previously unfamiliar categories become accepted as elements of common knowledge. These paths jointly inform the recognition front of the emergence question, an understudied problem in organization studies. Finally, we outline two methodologies – set theoretic analysis and network‐based analysis – that offer particular promise for analysing processes of category emergence and dissolution.     

Beyond Prototypes: Drivers of Market Categorization in Functional Foods and Nanotechnology

We develop a nuanced understanding of what drives producers’ and audiences’ categorization activities throughout market category development. Prior research on market categories assumes prototypical similarity to be the main or even only driver of categorization. Drawing on a comparative, longitudinal case study of the market categories ‘functional foods’ and ‘nanotechnology’ in Finland, we find that evolving perceptions, knowledge, and goals also impact categorization. Furthermore, our analysis uncovers that goal‐based categorization is characteristic for vital market categories, and the lack thereof may mark a waning interest and category decline. Overall, while previous research stresses the role of clear boundaries and knowledge bases for a viable category, we find that overly strict boundaries may constrain category vitality and renewal.     

The experience of time in the inter-organizing inquiry: A present thickened by dialog and situations

Following in the footsteps of scholars view of organizations as organizing processes, this research focuses on the temporal dimension of organizing, more specifically, the temporal dimension of (re)organizing inter-firm cooperation. As such, in this article we suggest that by viewing organizing processes as inquiries in the pragmatist sense, one can shed light on the experience of how time unfolds within the contextual conditions of developing interaction. We stress two key characteristics of organizing inquiries: (1) they are situated, and this situation is the source of unexpected events, surprises and novelty and (2) they are dialogical, and the unpredictable dynamics of dialog also punctuate their temporal course. This framework is used in the participant observation of a strategic project in the French retail industry, whose aim was to redesign supplier–retailer relationships using a category management approach. The empirical data gathered demonstrates how the organizing process develops as a situated and dialogical inquiry, and how the past, the future and the “elsewhere” of a situation are rolled together into the ongoing experience of the present moment. Our conclusion summarizes the contributions of this study and suggests avenues for future research into organizing processes.     

The Use of Valuation Models by UK Investment Analysts

This paper examines the use of valuation models by UK investment analysts. The study is based on, first, semi-structured interviews with 35 sell-side analysts from 10 leading investment banks and with 7 buy-side analysts from 3 asset management firms and, second, content analysis based on 98 equity research reports for FTSE-100 companies covered by the sell-side interviewees. We observe that analysts perceive the discounted cash flow (DCF) (and to some extent ‘sophisticated’ models in general) to have become significantly more important than prior survey evidence suggests, although we also find the (somewhat paradoxical) continued importance of ‘unsophisticated’ valuation multiples, notably the price/earnings ratio (PE). We find perceived limitations in the technical applicability of the DCF, which cause analysts to rely in practice upon valuation multiples and subjective judgement of whether the market price ‘feels right’. We also find that contextual factors, notably the analysts' need for their research to be credible to buy-side clients, cause the use of subjective, unsophisticated methods of valuation to be played down. Given the inherent flexibility of the DCF model, coupled with its ostensible credibility, it becomes the natural vehicle for conveying the analyst's research, even though it is very rarely relied upon to determine target prices and investment recommendations. We conclude that, while the literature has focused on the technical merits of alternative valuation models, analysts' actual usage of valuation models also requires an understanding of social and economic context and motivations.     

Category Stretching: Reorienting Research on Categories in Strategy,Entrepreneurship, and Organization Theory

We advocate for more tolerance in the manner we collectively address categories and categorization in our research. Drawing on the prototype view, organizational scholars have provided a ‘disciplining’ framework to explain how category membership shapes, impacts, and limits organizational success. By stretching the existing straightjacket of scholarship on categories, we point to other useful conceptualizations of categories – i.e. the causal‐model and the goal‐based approaches of categorization – and propose that depending on situational circumstances, and beyond a disciplining exercise, categories involve a cognitive test of congruence and a goal satisfying calculus. Unsettling the current consensus about categorical imperatives and market discipline, we suggest also that audiences may tolerate more often than previously thought organizations that blend, span, and stretch categories. We derive implications for research about multi‐category membership and mediation in markets, and suggest ways in which work on the theme of categories in the strategy, entrepreneurship, and managerial cognition literatures can be enriched.     

Category Divergence,Straddling, and Currency: Open Innovation and the Legitimation of Illegitimate Categories

The organizational literature is increasingly interested in the origins and consequences of category emergence. We examine the effects of being affiliated with categories initially considered illegitimate (‘divergence’), and of organizational attempts to blur the boundaries between categories (‘straddling’), on capital market reactions to firm announcements. We develop arguments for how these effects likely vary with increasing legitimation (‘currency’) of the category. We apply event study methodology to the complete population of firms' announcements of open source activities, an open innovation model for software development that is novel and defies the extant dominant logic of software production and valorization. Over a ten‐year period, we find negative effects of divergence, positive effects of straddling, and that the magnitude of both these effects diminishes with increasing category currency. The implications for theories of organization and open innovation in the context of category emergence are discussed.     

The market versus the analyst: Biases and predictive ability

Using the end of the quiet period (QPX) after an IPO as a venue for testing, we examine the long-run predictive ability of analysts and the market. Not only do we find that the analysts are reasonably good at predicting returns for at least a year, we also find that the market in general is at least as good—even after adjusting for the analysts’ recommendations. Separating the QPX market reaction into retail-dominated versus institutional-dominated – based on trade size – we find consistent evidence that only institutional-dominated reactions are positively related to longer-run return. When we examine 5-year survival prediction, we again find that only the institutional-dominated QPX reaction is positively related to survivability. There was no evidence that analysts were able to predict 5 years survival.     

ISO 9000 practices and financial performance: A technology coherence perspective

Attention to processes has increased, as thousands of organizations have adopted process-focused programs such as TQM and ISO 9000. Proponents of such programs stress the promise of improved efficiency and profitability. But research has not consistently borne out these prospects. Moreover, the expectation of universal benefits is not consistent with research highlighting the important role of firm-specific capabilities in sustaining competitive advantage. In this paper, we use longitudinal panel data on ISO 9000 practices for firms in the auto supplier industry to study two new issues related to the adoption of process management practices. First, we find that, as the majority of firms within an industry adopt ISO 9000, late adopters no longer gain financial benefits from these practices. Second, we explore how firms’ technological coherence moderates the performance advantages of ISO 9000 practices. We find that firms that have a very narrow or very broad technological focus have fewer opportunities for complementary interactions that arise from process management practices and thus benefit less than those with limited breadth in technologically related activities.     

Through the Looking‐Glass: The Impact of Regional Institutional Logics and Knowledge Pool Characteristics on Opportunity Recognition and Market Entry

This study investigates how regional variations in institutions and knowledge pools impact new firm entry into emerging industry sectors. Using the cleantech industry sector as a research context, we hypothesize and find that supportive regional institutional logics – shared meaning systems in a community that confer legitimacy upon particular goals and practices – generate cognitive schemas (mental models) that facilitate opportunity recognition and increase new firm entry rates. Drawing from research on socially situated cognition, we demonstrate that supportive institutional logics have a greater impact on new firm entry when a regional knowledge pool is larger, but a reduced impact on new firm entry when the knowledge pool is more specialized. These findings integrate previously distinct perspectives from institutional theory and knowledge economics, while contributing to research on how new industry sectors emerge.     

贸易增长与产业效益关联度分析

本文在对制造业贸易增长和产业效益关系进行分析时,把适用于较大样本的计量回归模型和适用于贫信息、小样本的灰色关联分析相结合,从不同的时间序列和时间节点展开研究,用以考察中国制造业和工业制成品贸易的发展与相关制造业产业效益的关系。其中对制造业整体的贸易与产业效益关系进行衡量时,运用6个计量模型对贸易与产业利润和生产率关系进行分析,此后就制造业中9个主要部门的直接经济效益,通过灰色系统理论中的灰色绝对关联度和相对关联度进行分析,得出高技术密集型产业的经济效益与贸易的关联性要高于劳动和资本密集型产业。     

The sociology of a market analysis tool: How industry analysts sort vendors and organize markets

The information technology (IT) marketplace appears to be shaped by new kinds of specialist industry analysts that link technology supply and use through offering a commodified form of knowledge and advice. We focus on the work of one such organisation, the Gartner Group, and with how it produces a market analysis tool called the ‘Magic Quadrant’. Widely circulated amongst the IT community, the device compares and sorts vendors according to a number of more or less intangible properties (such as vendor ‘competence’ and ‘vision’). Given that potential adopters of IT systems are drawn to assess the reputation and likely behaviour of vendors, these tools play an important role in mediating choice during procurement. Our interest is in understanding how such objects are constructed as well as how they wield influence. We draw on the recent ‘performativity’ debate in Economic Sociology and the Sociology of Finance to show how Magic Quadrants are not simply describing but reshaping aspects of the IT arena. Importantly, in sketching this sociology of a market analysis tool, we also attend to the contested nature of the Magic Quadrant. Whilst Gartner attempt to establish this device as an ‘impartial’ and ‘legitimate’ arbiter of vendor performance, it is often viewed sceptically on the grounds that industry analysts are not always independent of the vendors they are assessing. Paradoxically these devices remain influential despite these sceptical assessments.     

Increasing the Timeliness of US Annual Input-Output Accounts

The timeliness of the US input-output (I-O) accounts is a major concern for policymakers and industry analysts, as well as academics. In response, the Bureau of Economic Analysis initiated research in 2001 to identify, develop and implement an estimating method for producing more timely and reliable annual I-O accounts than are currently available. The research included reviewing the frameworks and methods currently used by other statistical agencies and academic researchers, obtaining more timely industry source data, and developing enhanced methods and processes for the automated updating and balancing of annual I-O tables. The results of this research indicate that our new automated updating and balancing method can reduce the time lag for producing the annual I-O accounts from three years to one year without reducing quality. Our method is based on an adjusted RAS process that simultaneously balances the I-O table in producers' and purchasers' prices; uses more exogenous data; and processes tables at the most detailed level.     

After the "Bubble": Valuation of Telecommunications Companies by Financial Analysts

In this article, we present the results of a series of interviews given by financial analysts specializing in the European telecommunications industry. Our objective is to gain an insight into their approaches to analysis and valuation (information sources, valuation methods, determinants of recommendations, etc.). We also consider whether analysts' approaches have changed since the “high‐tech bubble”. We find that today they rely much more on the discounted cash flow analysis method than at the end of the 1990s, when valuation was largely based on multiples. In line with this, analysts have changed their focus from revenue‐oriented measures towards an assessment of profitability and cash flow generation. Further, analysts claim to have become more diligent and more critical in their analysis.     

Learning in university technology transfer offices: transactions-focused and relations-focused approaches to commercialization of academic research

University Technology Transfer Offices (TTOs) need a wide range of abilities to facilitate commercial exploitation of research outputs; however, we know relatively little about how these important abilities are developed and refined over time. We draw on practice-based studies of learning to create a novel conceptualization of learning processes and their outcomes in TTOs and show that this conceptualization of learning provides new empirical insights into how learning in TTOs shapes their commercialization practice. We investigate learning-in-practice in case studies of six UK TTOs and find two approaches to commercialization, namely transactions-focused practice and relations-focused practice. We find that both practices co-exist and co-evolve in some TTOs while other TTOs are predominantly transactions-focused. For the latter the development of a relations-focused approach is difficult, but possible if there is strategic direction and if sources of inertia are removed by TTO directors. Given that evolving practice cannot be fully explained by informal learning processes, we suggest that so far separate streams of practice-based literature on learning and strategizing should be brought together. The implications for further investigations of TTO abilities and some recommendations for policy and practice are discussed.     

The Determinants of Price Adjustments in Retail Supermarkets

This paper examines the determinants of price adjustment decisions by supermarkets to increase or decrease prices for 11 different food categories and evaluates the characteristics of these firms that influence these decisions. We use a unique dataset to analyze firm variables and industry variables and their impact on price adjustment in supermarket stores. The study contributes to the price adjustment literature by identifying determinants of price behavior by stores and product category. We find that the rationale for increasing prices differs from that for decreasing prices, retailers make different adjustment decisions based on product category, and market‐level controls have little impact. Copyright © 2015 John Wiley & Sons, Ltd.     

Open standards,vertical disintegration and entrepreneurial opportunities: How vertically-specialized firms entered the U.S. semiconductor industry

This paper shows how the emergence of open standards has created large numbers of entrepreneurial opportunities in the semiconductor industry by enabling vertical specialization. Integrating data on firms and technology evolution, we find a gradual increase in the percentage of firms represented by newly-founded “de novo” entrepreneurial startups, instead of “de alio” ones, as open standards emerged in semiconductor products and processes over the life of the industry. This standardization reduced transaction costs and fostered specialization, thus facilitating the entry of vertically-specialized new ventures. Vise versa, the rise of such new ventures further pushed the adoption of open standards, and the vertical disintegration of the industry. Our theory on how standardization creates opportunities for new ventures and our analysis of the semiconductor industry contribute to the technology entrepreneurship literature, as well as the industry architecture literature that has primarily focused on the impact of standardization on the disintegration of vertically-integrated incumbents.     

The Economic Relevance of Environmental Disclosure and its Impact on Corporate Legitimacy: An Empirical Investigation

In determining its environmental disclosure strategy, a firm's management faces a tension between responding to the information needs of financial markets and maintaining its legitimacy within the community. In this paper, relying on information economics and legitimacy theory, we explore how firms resolve this tension. Results show that a firm's environmental disclosure enhances the quality of analysts' information context, which ultimately allows them to make better forecasts. Moreover, financial analysts seem to be able to decipher environmental information, discounting discourses that are inconsistent with a firm's underlying environmental performance. We find also that a firm's environmental disclosure serves another purpose, as it influences how its other stakeholders (beyond financial ones) perceive its legitimacy. Such enhanced legitimacy reduces the information uncertainty faced by financial analysts. Our results suggest also that both economic‐based environmental disclosure and sustainable development and environmental disclosure are useful to analysts in making their forecasts and enhance a firm's legitimacy. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.     

Paradigms and Novelty in Economics: The History of Economic Thought as a Source of Enlightenment

Over time, economics has experienced paradigm shifts, and there is every reason to think this will continue. In economics, as in the development of technological knowledge, paradigms do not emerge from nowhere, but build on precursors, possibly from other fields. Our understanding of current economic thinking can be enhanced by paying greater attention to the role of paradigms and by using concepts such as myth, plot structure, and cultural endowment, which are typically given greater attention by literary analysts than by economists, to study paradigms. Here we argue that together these can help us better understand how ideas from other times and fields may be combined with our own to generate better research and publications, and that a greater awareness of the history of economics may well be an excellent vehicle for enhancing that understanding.