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The 'Real' Value of Conflicted Analyst Coverage

57 Pages Posted: 18 Mar 2010 Last revised: 14 May 2014

Stacey E. Jacobsen

Southern Methodist University (SMU) - Edwin L. Cox School of Business - Department of Finance

Irina Stefanescu

Federal Reserve Board, Washington D.C.

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Date Written: January 2, 2013

Abstract

This paper examines whether conflicted analyst research affects the firms under coverage. We develop a novel approach to identify a sample of firms whose coverage is mostly driven by analysts’ private incentives to generate investment banking revenue. We find that conflicted analyst coverage is recognized by investors and its loss has little adverse effect on information efficiency, capital investment, cost of capital, and equity issuance. Our results suggest that firms attain little benefit when offering investment banking business in exchange for analyst coverage.

Keywords: Conflicts of interest, sell-side research, Global Research Settlement, analyst coverage incentives, loss of analyst coverage, information asymmetry.

JEL Classification: G12, G14, G18, G24

Suggested Citation

Jacobsen, Stacey E. and Stefanescu, Irina and Yu, Xiaoyun, The 'Real' Value of Conflicted Analyst Coverage (January 2, 2013). Available at SSRN: https://ssrn.com/abstract=1571418 or http://dx.doi.org/10.2139/ssrn.1571418

Stacey E. Jacobsen

Southern Methodist University (SMU) - Edwin L. Cox School of Business - Department of Finance ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

Irina Stefanescu (Contact Author)

Federal Reserve Board, Washington D.C. ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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