Should Information be Sold Separately? Evidence from MiFID II
63 Pages Posted: 17 Jun 2019 Last revised: 20 May 2020
Date Written: January 30, 2019
Information production is key to the efficiency of financial markets. Does selling information separately improve its production? We investigate this question using MiFID II, a European regulation that unbundles research from transactions. We show that unbundling causes fewer research analysts to cover a firm. This decrease does not come from small- or mid-cap firms but is concentrated in large firms. Surprisingly, the reduction in the coverage quantity is accompanied by an increase in the coverage quality. Further analyses suggest that the enhancement of analyst competition could drive the results: inaccurate analysts drop out (extensive margin) and analysts who stay produce better-quality research (intensive margin). Our findings suggest that selling information separately improves information quality at the cost of reducing information quantity.
Keywords: Analyst Research, Information Production, MiFID II, Unbundling
JEL Classification: G00, G14, G28
Suggested Citation: Suggested Citation