Broker Firms' Organisational Structure Changes and the Impact on Analyst Recommendations
47 Pages Posted: 31 Jan 2017
Date Written: January 31, 2017
We use a broker firm’s initial public offering (IPO) as a special event of organisational structure change and test its effects on the broker firm’s analyst recommendations. We find that analysts increase recommendations and the increases are significant in the few years after their broker firms’ IPO. The increases in recommendation of affiliated brokers are significantly larger than those of unaffiliated brokers. Newly listed broker firms experience significant increases in revenue and trade commissions and the increases are positively related to the recommendation changes. More importantly, recommendation bias declines as the newly listed broker firm seasons and as the firm’s revenue increases. The results support the economic incentive hypothesis but reject both the scrutiny and status-change hypotheses.
Keywords: Analyst recommendation; Broker firms; Investment banks; Conflicts of interest; Initial Public Offering
JEL Classification: G14
Suggested Citation: Suggested Citation