Conflicts of Interest and Stock Recommendations: The Effects of the Global Settlement and Related Regulations
Washington University in Saint Louis - John M. Olin Business School
Case Western Reserve University - Weatherhead School of Management
Singapore Management University
Ohio State University (OSU) - Fisher College of Business
The Review of Financial Studies, Vol. 22, Issue 10, pp. 4189-4217, 2009
We study the effect of the Global Analyst Research Settlement and related regulations on sell-side research. These regulations attempted to mitigate the interdependence between research and investment banking. We document that following the regulations many brokerage houses have migrated from the traditional five-tier rating system to a three-tier system. Optimistic recommendations have become less frequent and more informative, whereas neutral and pessimistic recommendations have become more frequent and less informative. Importantly, the overall informativeness of recommendations has declined. The likelihood of issuing optimistic recommendations no longer depends on affiliation with the covered firm, although affiliated analysts are still reluctant to issue pessimistic recommendations.
Keywords: G14, G24, G28Accepted Paper Series
Date posted: September 28, 2009
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