Sell-Side Analyst Research and Reported Conflicts of Interest

European Financial Management (Forthcoming)

44 Pages Posted: 5 Mar 2011 Last revised: 19 Nov 2012

See all articles by Daniel Arand

Daniel Arand

University of Giessen - Department of Financial Services

Alexander Gabriel Kerl

University of Giessen - Department of Financial Services

Multiple version iconThere are 2 versions of this paper

Date Written: August 09, 2012

Abstract

Using a unique dataset of conflicts of interest reported by a large investment bank, we examine the relationship between conflicts of interests and sell-side analysts’ behavior in setting target prices and stock recommendations. We demonstrate that the aggregate number of simultaneous business ties or personal links with a subject company is positively associated with both target prices and recommendations. These findings hold both in a stand-alone setting and when considered net of the prevailing market consensus. Furthermore, the results provide some indication that stocks for which conflicts of interests exist earn lower risk-adjusted returns than unconflicted stocks. However, we find no evidence that investors discount the value of sell-side analysts’ research with respect to the prevailing level of conflicts.

Keywords: Target Prices, Stock Recommendations, Conflicts of Interest, Bias, Regulation

JEL Classification: G14, G15

Suggested Citation

Arand, Daniel and Kerl, Alexander Gabriel, Sell-Side Analyst Research and Reported Conflicts of Interest (August 09, 2012). European Financial Management (Forthcoming), Available at SSRN: https://ssrn.com/abstract=1773547 or http://dx.doi.org/10.2139/ssrn.1773547

Daniel Arand

University of Giessen - Department of Financial Services ( email )

Licher Str, 74
Giessen, 35394
Germany

Alexander Gabriel Kerl (Contact Author)

University of Giessen - Department of Financial Services ( email )

Licher Str, 74
Giessen, 35394
Germany

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