Regulations and Brain Drain: Evidence From Wall Street Star Analysts’ Career Choices

52 Pages Posted: 22 Sep 2018

See all articles by Yuyan Guan

Yuyan Guan

City University of Hong Kong - College of Business

Congcong Li

Singapore Management University - School of Accountancy

Hai Lu

University of Toronto - Rotman School of Management

M.H. Franco Wong

University of Toronto - Rotman School of Management

Date Written: July 30, 2018

Abstract

The Global Settlement, along with related regulations in the early 2000s, prohibit the use of investment banking revenue to fund equity research and compensate equity analysts. We find that all-star analysts from investment banks are more likely to exit the profession or move to the buy side after the regulations. The departed star analysts’ earnings revisions and stock recommendations are more informative than those of the remaining analysts who followed the same companies. To the extent that star analysts are superior to their non-star counterparts in terms of research ability and ability to inform the market, the exit of star analysts represents a brain drain in the sell-side equity research industry. These results are consistent with the view that the regulations introduced to protect equity investors have unintended adverse effects on the investors due to a brain drain in investment banks.

Keywords: Analysts, Turnover, Brain Drain, The Global Settlement, Policy and Regulations, Investment Banks

JEL Classification: G14, G24, G28, J24, J63, K22, K23

Suggested Citation

Guan, Yuyan and Li, Congcong and Lu, Hai and Wong, M.H. Franco, Regulations and Brain Drain: Evidence From Wall Street Star Analysts’ Career Choices (July 30, 2018). Management Science, Forthcoming; Singapore Management University School of Accountancy Research Paper Series Vol. 6, No. 3 Paper No 2018-86. Available at SSRN: https://ssrn.com/abstract=3243135

Yuyan Guan

City University of Hong Kong - College of Business ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
852-34427136 (Phone)

Congcong Li

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Hai Lu (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

M.H. Franco Wong

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-0729 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Wong.aspx

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