Friends in Need are Friends Indeed: An Analysis of Social Ties between Financial Analysts and Mutual Fund Managers

67 Pages Posted: 1 Nov 2016 Last revised: 9 Dec 2016

Zhaoyang Gu

Chinese University of Hong Kong - School of Accountancy

Guangqing Li

China Galaxy Securities

Zengquan Li

Shanghai University of Finance and Economics - School of Accountancy

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Date Written: October 31, 2016

Abstract

We examine how social ties developed between financial analysts and mutual fund managers in schools and at workplaces affect their decisions in their business interactions. We show that fund managers are more likely to hold stocks covered by socially connected analysts and also make higher profits from these holdings. The holding return is higher for more opaque firms. These results are likely attributable to more corporate site visits and more optimistically biased recommendations by connected analysts for stocks held by the fund managers. In return, fund managers tend to cast their star analyst votes in favor of their connected analysts and their fund companies are more likely to allocate trading commissions to the connected analysts’ brokerages. The results are robust to various change analyses.

Suggested Citation

Gu, Zhaoyang and Li, Guangqing and Li, Zengquan and Yang, Yong George, Friends in Need are Friends Indeed: An Analysis of Social Ties between Financial Analysts and Mutual Fund Managers (October 31, 2016). Available at SSRN: https://ssrn.com/abstract=2861731 or http://dx.doi.org/10.2139/ssrn.2861731

Zhaoyang Gu

Chinese University of Hong Kong - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

Guangqing Li

China Galaxy Securities ( email )

Tower C, Corporate Square
35 Finance Street
Beijing, 100033
China

Zengquan Li

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Yong George Yang (Contact Author)

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin, N.T.
Hong Kong

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