Should Financial Gatekeepers Be Publicly Traded?

53 Pages Posted: 7 Dec 2017 Last revised: 20 Oct 2018

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: August 16, 2018


We investigate how a broker firm’s initial public offering (IPO) affects its analysts’ fiduciary duty of providing independent and objective recommendations. We find that the analysts of newly listed broker firms issue more positively biased recommendations in the first two to three years after their employers’ IPO than before the IPO. The increase in the recommendation bias is greater among analysts of affiliated brokers and brokers that raise additional capital after their IPO than among other analysts. Newly listed broker firms experience significant increases in revenue and trading commission, and the increases are positively related to recommendation bias, after controlling for many other factors. More importantly, recommendation bias decreases as newly listed broker firms season and as the importance of trading commission declines. This suggests that public exposure through a broker firm’s IPO does not enhance the integrity and professional conduct of its financial analysts. Rather, economic incentives make financial analysts more accepting of unethical behavior. The overall results imply that the public trading of financial gatekeepers compromises the ethical relationship between financial service professionals and society in general.

Keywords: Ethical conduct; Initial public offering; Analyst recommendation; Financial gatekeepers; Broker firms.

Suggested Citation

Huang, Haozhi and Li, Mingsheng and Shi, Jing, Should Financial Gatekeepers Be Publicly Traded? (August 16, 2018). Journal of Business Ethics, Forthcoming. Available at SSRN: or

Haozhi Huang

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109

Mingsheng Li (Contact Author)

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

Bowling Green, OH 43403
United States

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109

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