Conflicts of Interest and Stock Recommendations: The Effects of the Global Settlement and Related Regulations

Posted: 28 Sep 2009

See all articles by Ohad Kadan

Ohad Kadan

Washington University in St. Louis - John M. Olin Business School

Leonardo Madureira

Case Western Reserve University - Weatherhead School of Management

Rong Wang

Singapore Management University; Singapore Management University - Lee Kong Chian School of Business

Tzachi Zach

Ohio State University (OSU) - Fisher College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 2009

Abstract

We study the effect of the Global Analyst Research Settlement and related regulations on sell-side research. These regulations attempted to mitigate the interdependence between research and investment banking. We document that following the regulations many brokerage houses have migrated from the traditional five-tier rating system to a three-tier system. Optimistic recommendations have become less frequent and more informative, whereas neutral and pessimistic recommendations have become more frequent and less informative. Importantly, the overall informativeness of recommendations has declined. The likelihood of issuing optimistic recommendations no longer depends on affiliation with the covered firm, although affiliated analysts are still reluctant to issue pessimistic recommendations.

Keywords: G14, G24, G28

Suggested Citation

Kadan, Ohad and Madureira, Leonardo and Wang, Rong and Zach, Tzachi, Conflicts of Interest and Stock Recommendations: The Effects of the Global Settlement and Related Regulations (October 2009). The Review of Financial Studies, Vol. 22, Issue 10, pp. 4189-4217, 2009. Available at SSRN: https://ssrn.com/abstract=1479106 or http://dx.doi.org/10.1093/rfs/hhn109

Ohad Kadan (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Leonardo Madureira

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States
216-368-5003 (Phone)

HOME PAGE: http://faculty.weatherhead.case.edu/madureira/

Rong Wang

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Tzachi Zach

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-4101 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
661
PlumX Metrics