Which Analysts to Believe? Analysts’ Conflicts of Interest and Societal Trust

43 Pages Posted: 11 Jan 2015 Last revised: 17 Nov 2016

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Kiridaran (Giri) Kanagaretnam

York University - Schulich School of Business

Hongping Tan

McGill University

Date Written: January 30, 2015

Abstract

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

Suggested Citation

Bae, Kee-Hong and Kanagaretnam, Kiridaran and Tan, Hongping, Which Analysts to Believe? Analysts’ Conflicts of Interest and Societal Trust (January 30, 2015). Available at SSRN: https://ssrn.com/abstract=2547875 or http://dx.doi.org/10.2139/ssrn.2547875

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Kiridaran Kanagaretnam

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Hongping Tan (Contact Author)

McGill University ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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