Equity Analysts Affiliated with Corporate Lenders

59 Pages Posted: 21 Oct 2010 Last revised: 26 Nov 2010

See all articles by Johan Sulaeman

Johan Sulaeman

National University of Singapore (NUS) - Department of Finance

David C. Cicero

Harbert College of Business, Auburn University

Swaminathan L. Kalpathy

Texas Christian University - M.J. Neeley School of Business

Date Written: August 1, 2010

Abstract

Equity analysts affiliated with corporate lenders publish superior research on borrowers, consistent with private information sharing within financial institutions. Relative to other analysts, lender-affiliated analysts improve the accuracy of their earnings forecasts after a lending relationship is established, and they are more likely to amend their research on borrowers ahead of revelation of adverse credit-related information. Borrowers are also more likely to choose banks whose affiliated analysts maintain more favorable recommendations on their stock. Additional analyses suggest that these favorable recommendations can be partially explained by strategic bias induced by lender-affiliated analysts. Lending-related informational advantages persist beyond Regulation FD and the Global Settlement, but strategic use of bias ends with the Global Settlement. Stock market reactions to research modifications suggest investors appreciate the "specialness" of lender-affiliated analysts.

Keywords: Equity Analyst Regulation

Suggested Citation

Sulaeman, Johan and Cicero, David C. and Kalpathy, Swaminathan L., Equity Analysts Affiliated with Corporate Lenders (August 1, 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=1695064

Johan Sulaeman (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://sites.google.com/site/johansulaeman/

David C. Cicero

Harbert College of Business, Auburn University ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States

Swaminathan L. Kalpathy

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

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