Conflicts of Interest and Analyst Behavior: Evidence from Recent Changes in Regulation

41 Pages Posted: 14 May 2008 Last revised: 22 Apr 2009

See all articles by Armen Hovakimian

Armen Hovakimian

Baruch College - Zicklin School of Business

Ekkachai Saenyasiri

Hong Kong University of Science & Technology (HKUST) - Department of Finance

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Date Written: April 20, 2009

Abstract

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

Hovakimian, Armen and Saenyasiri, Ekkachai, Conflicts of Interest and Analyst Behavior: Evidence from Recent Changes in Regulation (April 20, 2009). Available at SSRN: https://ssrn.com/abstract=1133102 or http://dx.doi.org/10.2139/ssrn.1133102

Armen Hovakimian (Contact Author)

Baruch College - Zicklin School of Business ( email )

One Bernard Baruch Way
Box B10-225
New York, NY 10010
United States
646-312-3490 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://zicklin.baruch.cuny.edu/faculty-profile/armen-hovakimian/

Ekkachai Saenyasiri

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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