Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors

Ljungqvist, Alexander; Marston, Felicia C.; Starks, Laura T.; Wei, Kelsey D.; Yan, Hong

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Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors

NYU Working Paper No. FIN-04-034

48 Pages Posted: 3 Nov 2008

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

Felicia C. Marston

University of Virginia - McIntire School of Commerce

Laura T. Starks

University of Texas at Austin - Department of Finance

Hong Yan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

There are 4 versions of this paper

Date Written: January 2005

Abstract

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.

Suggested Citation: Suggested Citation

Ljungqvist, Alexander and Ljungqvist, Alexander and Marston, Felicia C. and Starks, Laura T. and Wei, Kelsey D. and Yan, Hong, Conflicts of Interest in Sell-Side Research and the Moderating Role of Institutional Investors (January 2005). NYU Working Paper No. FIN-04-034, Available at SSRN: https://ssrn.com/abstract=1294491