What Drives Sell-Side Analyst Compensation at High-Status Investment Banks?

Journal of Accounting Research, Forthcoming

49 Pages Posted: 3 Apr 2011 Last revised: 14 May 2011

See all articles by Boris Groysberg

Boris Groysberg

Harvard Business School

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

David A. Maber

California Polytechnic State University

Date Written: March 29, 2011

Abstract

We use proprietary data from a major investment bank to investigate factors associated with analysts’ annual compensation. We find compensation to be positively related to "All-Star" recognition, investment-banking contributions, the size of analysts’ portfolios, and whether an analyst is identified as a top stock-picker by the Wall Street Journal. We find no evidence that compensation is related to earnings forecast accuracy. But consistent with prior studies, we find analyst turnover to be related to forecast accuracy, suggesting that analyst forecasting incentives are primarily termination-based. Additional analyses indicate that "All-Star" recognition proxies for buy-side client votes on analyst research quality used to allocate commissions across banks and analysts. Taken as a whole, our evidence is consistent with analyst compensation being designed to reward actions that increase brokerage and investment-banking revenues. To assess the generality of our findings, we test the same relations using compensation data from a second high-status bank and obtain similar results.

Suggested Citation

Groysberg, Boris and Healy, Paul M. and Maber, David A., What Drives Sell-Side Analyst Compensation at High-Status Investment Banks? (March 29, 2011). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1800170

Boris Groysberg

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-496-2784 (Phone)
617-496-5271 (Fax)

Paul M. Healy

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-1283 (Phone)
617-496-7387 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David A. Maber (Contact Author)

California Polytechnic State University ( email )

San Luis Obispo, CA
United States

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