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Analyst Conflicts and Research Quality

Quarterly Journal of Finance, 2012

45 Pages Posted: 27 Jun 2012  

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Mark A. Chen

Georgia State University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: June 27, 2012


This paper examines whether the quality of stock analysts’ forecasts is related to conflicts of interest from their employers’ investment banking (IB) and brokerage businesses. We consider four aspects of forecast quality: accuracy, bias, and revision frequency of quarterly earnings per share (EPS) forecasts and relative optimism in long-term earnings growth (LTG) forecasts. Using a unique dataset that contains the annual revenue breakdown of analysts’ employers among IB, brokerage, and other businesses, we uncover two main findings. First, accuracy and bias in quarterly EPS forecasts appear to be unrelated to conflict magnitudes, after controlling for forecast age, firm resources and analyst characteristics. Second, relative optimism in LTG forecasts and the revision frequency of quarterly EPS forecasts are positively related to the importance of brokerage business to analysts’ employers. Additional tests suggest that the frequency of quarterly forecast revisions is positively related to analysts’ trade generation incentives. Our findings suggest that reputation concerns keep analysts honest with respect to short-term earnings forecasts but not long-term growth forecasts. In addition, conflicts from brokerage appear to play a more important role in shaping analysts’ forecasting behavior than has been previously recognized.

Keywords: Stock analysts, Security analysts, Analyst conflicts, Analyst forecasts, Investment banking, Brokerage commissions, Conflicts of interest

JEL Classification: G24, G28, G34, G38, K22, M41

Suggested Citation

Agrawal, Anup and Chen, Mark A., Analyst Conflicts and Research Quality (June 27, 2012). Quarterly Journal of Finance, 2012. Available at SSRN:

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Commerce
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)


Mark Chen

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States

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