Reg FD and the Competitiveness of All-Star Analysts

This paper examines the impact of Regulation Fair Disclosure (Reg FD) on the competitive advantage of All-Star analysts. We find that Institutional Investor All-Americans, chosen by the votes of institutional investors based on overall helpfulness to the buy-side, experienced a significant increase in turnover during the implementation and immediate aftermath of Reg FD. We do not observe a similar change in the Institutional Investor buy-side rankings of non-U.S. analysts or in the Wall Street Journal s Best on the Street rankings which are based solely on returns generated from the analyst s public stock recommendations. Furthermore, the significant change in All-American rankings is concentrated in those sectors identified by DIRI and Hutton (2005) as being most affected by Reg FD. By 2003, the competitive environment for All-Americans had stabilized, with turnover returning to (approximately) pre-Reg FD levels. This suggests that within a few years, All-Americans had built a new competitive advantage stressing aspects of performance less dependent on privileged communication with management.