The 'Real' Value of Conflicted Analyst Coverage

Jacobsen, Stacey E.; Stefanescu, Irina; Yu, Xiaoyun

doi:10.2139/ssrn.1571418

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The 'Real' Value of Conflicted Analyst Coverage

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

See all articles by Stacey E. Jacobsen

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department

Irina Stefanescu

Board of Governors of the Federal Reserve System

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER); 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: 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