Should Information be Sold Separately? Evidence from MiFID II

Abstract

Information production is key to the efficiency of financial markets. Does selling information separately improve its production? We investigate this question using MiFID II, a European regulation that unbundles research from transactions. We show that unbundling causes fewer research analysts to cover a firm. This decrease does not come from small- or mid-cap firms but is concentrated in large firms. Surprisingly, the reduction in analyst coverage is accompanied by a decrease in forecast error. Further analyses suggest that analyst competition enhancement could drive the results: inaccurate analysts drop out, and analysts who stay produce more accurate research.

Keywords: Analyst Research, Information Production, MiFID II, Unbundling

JEL Classification: G00, G14, G28