Investment Bank Monitoring and Bonding of Security Analysts’ Research

49 Pages Posted: 1 Aug 2018 Last revised: 28 May 2019

See all articles by Oya Altinkilic

Oya Altinkilic

University of Maryland - Robert H. Smith School of Business

Vadim S. Balashov

Rutgers School of Business-Camden

Robert S. Hansen

Tulane University - A.B. Freeman School of Business

Date Written: July 31, 2018

Abstract

We assess investment banks’ influence over the agreement between their analysts’ research behavior and their clients’ interests, in the post-reform era. Competing banks discipline their analysts with worse career outcomes for producing biased reports, issuing shirking reports, and for involvement in the earnings guidance game, showing meaningful monitoring of their analysts. Highly reputable banks provide more monitoring discipline of their analysts and bonding of their moral hazard than other banks. Bank reputation is uniquely important because the expected benefits from analyst personal reputation are too little to bond the typical analyst’s moral hazard. The findings agree with the banks taking responsibility for aligning analysts’ behavior with clients’ interests.

Keywords: Analysts, Analysts’ forecasts, Analysts’ recommendations, Career outcome, Earnings guidance, Financial analysts, Financial markets, Herding, Investment banking, Management forecasts, Management guidance, Market efficiency, Piggybacking, Regulatory change, Security analysts, Shirking

JEL Classification: D82, G2, G24, G29, M41

Suggested Citation

Altinkilic, Oya and Balashov, Vadim S. and Hansen, Robert S., Investment Bank Monitoring and Bonding of Security Analysts’ Research (July 31, 2018). Journal of Accounting & Economics (JAE), Vol. 67, No. 1, 2019. Available at SSRN: https://ssrn.com/abstract=3223868 or http://dx.doi.org/10.2139/ssrn.3223868

Oya Altinkilic

University of Maryland - Robert H. Smith School of Business ( email )

4426 Van Munching Hall
Department of Finance
College Park, MD 20742
United States

Vadim S. Balashov

Rutgers School of Business-Camden ( email )

Camden, NJ 08102
United States
856-225-6706 (Phone)

Robert S. Hansen (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

Goldring/Woldenberg Hall
7 McAllister Blvd.
New Orleans, LA 70118
United States
504-865-5624 (Phone)

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