Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors
48 Pages Posted: 3 Nov 2008
Date Written: January 2005
Because sell-side analysts are dependent on institutional investors for performance ratings and trading commissions, we argue that analysts are less likely to succumb to investment banking or brokerage pressure in stocks highly visible to institutional investors. Examining a comprehensivesample of analyst recommendations over the 1994-2000 period, we find that analysts recommendations relative to consensus are positively associated with investment bankingrelationships and brokerage pressure, but negatively associated with the presence of institutional investor owners. The presence of institutional investors is also associated with more accurate earnings forecasts and more timely re-ratings following severe share price falls.
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