Conflict-of-Interest Reforms and Brain Drain in Investment Banks

44 Pages Posted: 21 Sep 2010

See all articles by Yuyan Guan

Yuyan Guan

Nanyang Business School, Nanyang Technological University

Hai Lu

University of Toronto - Rotman School of Management

M.H. Franco Wong

University of Toronto - Rotman School of Management

Date Written: September 20, 2010

Abstract

Reforms on analyst conflicts of interest prohibit the use of investment banking revenue to fund equity research and compensate equity analysts. After the reforms, we find that star analysts from investment banks are more likely to exit the profession and move to the buy side than before. The departed star analysts’ research is more accurate and informative than the remaining analysts who followed the same companies. These results are consistent with the reforms causing a brain drain in investment banks and potentially having an adverse effect on the consumers of the departed stars’ research and the information environment of the companies followed by these stars.

Keywords: Securities analysts, Analyst turnover, Brain Drain, Conflict of interest regulations, Global Settlement, Sarbanes-Oxley Act, Government policy and regulation, Investment banks

JEL Classification: G14, G24, G28, J24, J63, K22, K23

Suggested Citation

Guan, Yuyan and Lu, Hai and Wong, M.H. Franco, Conflict-of-Interest Reforms and Brain Drain in Investment Banks (September 20, 2010). Available at SSRN: https://ssrn.com/abstract=1680090 or http://dx.doi.org/10.2139/ssrn.1680090

Yuyan Guan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Hai Lu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

M.H. Franco Wong (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-0729 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Wong.aspx

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