Sell‐Side Analyst Research and Reported Conflicts of Interest

32 Pages Posted: 29 Jan 2015

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: January 2015

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’ behaviour in setting target prices and stock recommendations. We demonstrate that the aggregate number of simultaneous business ties with a subject company is positively associated with optimism in target prices and recommendations. 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

Suggested Citation

Arand, Daniel and Kerl, Alexander Gabriel, Sell‐Side Analyst Research and Reported Conflicts of Interest (January 2015). European Financial Management, Vol. 21, Issue 1, pp. 20-51, 2015, Available at SSRN: https://ssrn.com/abstract=2557141 or http://dx.doi.org/10.1111/j.1468-036X.2012.00661.x

Daniel Arand (Contact Author)

University of Giessen - Department of Financial Services ( email )

Licher Str, 74
Giessen, 35394
Germany

Alexander Gabriel Kerl

University of Giessen - Department of Financial Services ( email )

Licher Str, 74
Giessen, 35394
Germany

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