Jet usage by firms, particularly in the context of private meetings with investors, is a critical yet unnoticed element influencing investment markets. This article investigates the use of corporate jet flight patterns as a proxy for private meetings and implications on stock market reactions, analyst activities, and institutional investor trading. Drawing on Bushee, Gerakos, and Lee (2018), we examine the channels through which corporate jets influence investment behavior and market consequences to identify sources of elite investor access over their non-elite peers.
How Corporate Jet Utilization Works
Using corporate jets to fly varies from operational functions and executive travel. But its chief use case is in providing a platform for private meetings between startups and investors at institutions. Usually held in conjunction with roadshows, these face-to-face meets are where company executives can speak directly to major shareholders. The study identifies two major categories of roadshows:
- Money Center Roadshow: flights to key financial centers such as Boston, Chicago, New York, and San Francisco.
- Non-MC Roadshow: Flights required to cities that have a large nonfirm-specific institutional ownership; however, not money center locations.
Using data on almost 400,000 flights and building proxies to capture these unobservable private meetings, the researchers studied their effect on stock returns, analyst behavior (forecasts), as well as institutional activity. In summary, private meetings result in abnormal returns and make changes in the trading volume of the market.
Market Reactions to Private Meetings
Abnormal Returns and Trading Volume Roadshow windows featured even higher ASAR and Turnover than their flight activities, in abnormal absolute size-adjusted returns (ASAR) and the rest of the market-neutral share turnover concepts. So these private meetings during those roadshows are a great qualitative way to round out the trading spectrum, both for investors needing better insight on their privates and for you making subsequent trades. Cash center roadshows saw a 4.0% greater relative abnormal profits and a 3.6% boost in share turnover as well, for example of this. The fact that the market reacts in this way shows something important: These meetings contain real information – albeit trifling when aggregated across all attendees compared to normal economic releases, but enough so there is some influence on the behavior of trading, not just gossiping.
Signed Returns Were Positive
Elsewhere, the study found that signed returns were overwhelmingly positive in roadshow windows. That would suggest that executives mostly conduct them when they think their stock is undervalued, in an attempt to provide investors with the sort of positive signaling information. This is reinforced by also observing that there are no abnormal return reversals in subperiods following the roadshows, thus suggesting market adjustments during those windows rather than short-term hype.
Impact on Analyst Forecast Activity
Part and parcel with making Wall Street analysts available to sit-down face-to-face with a company’s senior executives is the corporate jet. These roadshows are in financial hubs, so afford more opportunities for analysts to meet a company – and lead (as illustrated on the chart below) to subsequent forecast activity from those same analysts. Results of the study confirmed a positive relation between money center roadshows and new analyst forecasts, suggesting that these meetings function as an information conduit to analysts for them to re-evaluate their assessments. Non-money center roadshows, on the other hand, did not have significant higher analyst forecast revisions so one can infer that those flights are probably less about meetings with analysts and more purely investor communication.
Changes in Institutional Ownership and Trading Gains
Local ownership: The roadshow flights are shown to be driving increases in local institutional ownership. This suggests that these private meetings do indeed generate new institutional investment decisions for money center roadshows. Non-money center roadshows experienced more significant trading in and out as markets factored in the different interpretation of information presented at these meetings. Certainly, not all of the team roving trading gains were massive, though positive on an overall level while some they would say certainly loomed large. Money center roadshows led to significant trading gains for firms with more complex information environments and those that did not meet investors very frequently before, but no gains for the average firm. This is consistent with the view that private meetings are most valuable when insight into a firm’s prospects hinges on nuanced and granular information.
Regulatory and Market Implications
The results are important for regulation. Since these meetings are behind closed doors, the vast majority of investors who represent their clients do not know that such a thing is happening. All of this casts a shadow over the idea that markets should – and let’s face it, could ever really be said to – operate on level playing field terms. As part of the proof in these cases, perhaps regulators should be evaluating not just individual selective disclosures or private meetings, but also more broadly what this information asymmetry means for market integrity. Corporate jets help make worse investment decisions – corporate leaders might use their planes for private meetings with money managers and analysts, thereby transitioning from the light of public scrutiny into shadow. These meetings serve as a platform for qualitative information exchange, which will, in turn, affect how the stock market reacts and cause knock-on effects on analyst activities as well as institution trading behaviors. The economic magnitudes of those effects may be relatively minor, because the meetings are private; nevertheless, what these privileged investors gain in access underscores why it is worth keeping a vigilant watch over them and potentially adjusting regulation to ensure fairness for all shareholders.
