When do Banks Listen to Their Analysts? Evidence from Mergers and Acquisitions

Review of Financial Studies, Forthcoming

58 Pages Posted: 22 Mar 2009 Last revised: 15 Apr 2010

See all articles by David Haushalter

David Haushalter

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration

Michelle Lowry

Drexel University

Date Written: March 6, 2009

Abstract

We examine the conflicts of interest and the flow of information between divisions of financial institutions. Using data on analyst recommendations and stockholdings of investment banks advising acquirers in mergers, we find evidence that information from investment banking flows to other divisions of the bank. Specifically, following a merger announcement, changes in a bank’s stockholdings of the acquirer are positively associated with changes in recommendations by its analyst. This relation, however, does not exist before the merger announcement. Additional tests show that the relation between stockholdings and recommendations following a merger announcement is strongest when conflicts of interest for analysts are likely smallest.

Keywords: merger, analyst, investment banking, conflicts of interest

JEL Classification: G34, D82, G24

Suggested Citation

Haushalter, David and Lowry, Michelle B., When do Banks Listen to Their Analysts? Evidence from Mergers and Acquisitions (March 6, 2009). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1362001

David Haushalter

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration ( email )

University Park, PA 16802
United States
814-863-7969 (Phone)
814-865-3362 (Fax)

Michelle B. Lowry (Contact Author)

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

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