Which Analysts to Believe? Analysts’ Conflicts of Interest and Societal Trust
43 Pages Posted: 11 Jan 2015 Last revised: 17 Nov 2016
Date Written: January 30, 2015
Using societal trust of the country in which an analyst resides, we examine the impact of trust on the informativeness of analyst research. We find that market reactions are more pronounced to forecasts by analysts from more trustworthy countries. This result holds after controlling for the trustworthiness of the country in which the covered firm is headquartered and other analyst country characteristics. The impact of trust is particularly stronger when analysts are perceived to be subject to conflicts of interest. Our study highlights the importance of societal trust as an important trait in the investment value of analyst research.
Keywords: Societal trust; analyst; conflicts of interest; earnings forecast; recommendation; market reaction
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