Broker Firms' Organisational Structure Changes and the Impact on Analyst Recommendations

47 Pages Posted: 31 Jan 2017

See all articles by Haozhi (Rachel) Huang

Haozhi (Rachel) Huang

Macquarie University

Mingsheng Li

Bowling Green State University - College of Business Administration

Jing Shi

Macquarie University

Date Written: January 31, 2017

Abstract

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

Huang, Haozhi and Li, Mingsheng and Shi, Jing, Broker Firms' Organisational Structure Changes and the Impact on Analyst Recommendations (January 31, 2017). Available at SSRN: https://ssrn.com/abstract=2908771 or http://dx.doi.org/10.2139/ssrn.2908771

Haozhi Huang

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Mingsheng Li

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Jing Shi (Contact Author)

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

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