Conflicts of Interest and Analyst Behavior: Evidence from Recent Changes in Regulation
41 Pages Posted: 14 May 2008 Last revised: 22 Apr 2009
Date Written: April 20, 2009
Recent efforts of regulators have helped neutralize analysts’ conflict of interest. Analysts tended to make overly optimistic earnings forecasts prior to Regulation FD and the Global Analyst Research Settlement. Regulation FD made analysts less dependent on insider information and, thereby, diminished analysts’ motives to inflate their forecasts. The impact of Regulation FD is more apparent for firms with less informational transparency. The Global Settlement had an even bigger impact on analyst behavior. After the Global Settlement, the mean forecast bias declined significantly, whereas the median forecast bias essentially disappeared. These results are not limited to 12 banks covered by the Global Settlement, but are similar for all analysts.
Keywords: Analyst forecasts, Bias, Optimism, Regulations, Conflicts of interest, Regulation FD, Global Settlement
JEL Classification: G24, G28, G29, M41
Suggested Citation: Suggested Citation