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The market for information—evidence from finance directors, analysts and fund managers

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  • Richard Barker

Abstract

The theoretical distinction between information efficiency and fundamental efficiency suggests an important question for accounting research, which is whether (and to what extent) there exists an equilibrium mechanism whereby fund managers investment decisions can be fully informed. This question is approached in this paper by means of developing a grounded theory of the market for information. The theory is derived from a (mostly interview-based) empirical analysis of the economic incentives of finance directors, analysts and fund managers with respect to stock market information flows. The evidence suggests a two-part theory. First, it is argued that ‘raw’ data flowing directly from companies is of considerably greater importance to fund managers than ‘processed’ data generated by analysts. Second, analysts are nevertheless argued to play an important role in the market for information, as both mechanisms of information efficiency and as providers of benchmarks for consensus valuation. This theory implies that the research literature has paid insufficient attention to the role of accounting information in direct communication between companies and fund managers and, related to this, that the role of analysts in share price determination has been overstated and only superficially understood.

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  • Richard Barker, 1998. "The market for information—evidence from finance directors, analysts and fund managers," Accounting and Business Research, Taylor & Francis Journals, vol. 29(1), pages 3-20.
    • Handle: RePEc:taf:acctbr:v:29:y:1998:i:1:p:3-20
    DOI: 10.1080/00014788.1998.9729563
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    6. Gerrit Sarens & Giuseppe D’Onza, 2017. "The perception of financial analysts on risk, risk management, and internal control disclosure: Evidence from Belgium and Italy," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(2), pages 118-138, May.
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    8. Ray Donnelly & Mark Mulcahy, 2008. "Board Structure, Ownership, and Voluntary Disclosure in Ireland," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(5), pages 416-429, September.
    9. Lee, Kenneth & Manochin, Melina, 2021. "Sell-side equity analysts and equity sales: A study of interaction," The British Accounting Review, Elsevier, vol. 53(5).
    10. Yanan Li & Wenjun Wang, 2022. "Company visits and mutual fund performance: new evidence on managerial skills," Journal of Asset Management, Palgrave Macmillan, vol. 23(6), pages 504-521, October.
    11. Lee, Kenneth & Aleksanyan, Mark & Harris, Elaine & Manochin, Melina, 2023. "Throwing in the towel: what happens when analysts' recommendations go wrong?," LSE Research Online Documents on Economics 121412, London School of Economics and Political Science, LSE Library.
    12. Edgley, Carla & Holland, Kevin, 2021. "“Unknown unknowns” and the tax knowledge gap: Power and the materiality of discretionary tax disclosures," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 81(C).
    13. Chen, Lei & Danbolt, Jo & Holland, John, 2018. "Information about bank intangibles, analyst information intermediation, and the role of knowledge and social forces in the ‘market for information’," Accounting forum, Elsevier, vol. 42(3), pages 261-276.
    14. Rojas-de-Gracia, María-Mercedes & Casado-Molina, Ana-María & Alarcón-Urbistondo, Pilar, 2021. "Relationship between reputational aspects of companies and their share price in the online environment," Technology in Society, Elsevier, vol. 64(C).
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    18. Les Coleman, 2023. "Explaining mutual fund behavior through the structure‐conduct‐performance lens," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2874-2884, July.
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    21. Clatworthy, Mark & Jones, Michael John, 2008. "Overseas equity analysis by UK analysts and fund managers," The British Accounting Review, Elsevier, vol. 40(4), pages 337-355.

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