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

Xiaoyun Yu

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

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) - Finance Department ( email )

United States

Irina Stefanescu (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

Xiaoyun Yu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

China Academy of Financial Research (CAFR)

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

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