The 'Real' Value of Conflicted Analyst Coverage
Stacey E. Jacobsen
Southern Methodist University (SMU) - Edwin L. Cox School of Business - Department of Finance
Federal Reserve Board, Washington D.C.
Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)
January 2, 2013
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.
Number of Pages in PDF File: 57
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
Date posted: March 18, 2010 ; Last revised: May 14, 2014