Conferences sponsored by research providers are a valuable research service which generates higher commissions as well as directed trades, according to an academic study. The study estimated that investors allocated an average of $35,000 in additional commissions for each research conference.
“Investor Conferences and the Changing Nature of Analyst Research” was authored by T. Clifton Green, Russell Jame, Stanimir Markov, and Musa Subasi, academics from Emory University, University of New South Wales, and the University of Texas. The authors relied on transaction data supplied by Abel Noser, which provides transaction cost analysis to its asset management clients. Abel Noser’s transaction data was cross-referenced with investor conference data from the Bloomberg Corporate Events Database.
The data was from the period from 2004 to 2008, so it predated the financial crisis and subsequent declines in commission volumes. Nevertheless, the results are likely to still be relevant, albeit at lower levels today.
During the study period, the brokers in the sample produced an average of 6.4 conferences per year. There was substantial cross-sectional variation with the top 5% of brokers having hosted more than 20 conferences per year. On average, roughly 25 companies presented at a given conference.
The study calculated that hosting an investor conference was associated with an average $11.9 million increase in commission revenues for the brokers in the sample.
The authors found that commissions on stocks of companies that presented at the conferences were higher than those on other stocks. The study estimated that each conference generated an average of $35,000 in extra trading commissions.
Although not highlighted in the study, the Abel Noser transaction data shows large disparities in the commissions paid to research providers. During the study period (2004 to 2008) the average commission was 3.68 cents, which ranged from 2 cents, which roughly corresponded to the execution rate at that time, to 4.6 cents to the very largest.
The spread in commission revenues was similarly wide, ranging from $2,000 at the low end to $74 million at the upper end. During the study period, commissions were dropping roughly .35 cents per year on average.
Although commission rates, and commission revenues, have decreased dramatically since the time period of the study, investor conferences remain one of the more valuable components of research. Anecdotal evidence suggests that investors still pay a premium for conferences. However, the premium has gone down, and over time we can expect fewer conferences. One of the reasons management access remains popular is that the costs are lower than for conferences, while the benefits are at least as large.
As the study authors point out, conferences are part of the suite of services most valued by investors, which has altered the analyst’s role: “Perhaps analysts’ primary role is to facilitate information production by the most sophisticated investors by providing them with management access, timely responses to their questions, and unique information sources rather than to produce and distribute information in the form of research reports, recommendations, and earnings forecasts to a broad client base.”