MiFID II Unbundling and Sell Side Analyst Research

56 Pages Posted: 26 Jun 2019

See all articles by Mark H. Lang

Mark H. Lang

University of North Carolina at Chapel Hill

Jedson Pinto

University of Texas at Dallas

Edward Sul

George Washington University

Date Written: June 21, 2019

Abstract

We examine the effect of MiFID II, which mandated the unbundling and separate pricing of analyst research in Europe beginning in 2018. We find that the requirements of MiFID II were associated with a reduction in analyst following for European firms relative to US firms, with decreases in coverage greatest for firms that were larger, older and less volatile, and had greater coverage and more accurate consensus forecasts. Remaining analysts follow fewer firms and issue fewer forecasts, consistent with increased focus, and appear to increase their efforts on the firms they continue to cover. In particular, forecasts become more accurate, are more likely to be disaggregated and include recommendations, and are accompanied by larger stock price reactions. Consistent with increased effort to curry favor with management, analysts issue more optimistic recommendations and beatable earnings forecasts. While individual forecasts are more informative, the overall information environment for the average firm tends to deteriorate, with less aggregate information conveyed by analyst forecasts, a greater proportion of information delayed to earnings announcements and higher average bid-ask spreads. Taken as a whole, results are consistent with a reduction in analyst following mitigated by an increase in focus and effort by remaining analysts, but with an overall negative effect on the information environment.

Keywords: Sponsored Research, MiFID II, Analyst Coverage

JEL Classification: G14, G18, G24, G29, M41, N44

Suggested Citation

Lang, Mark H. and Pinto, Jedson and Sul, Edward, MiFID II Unbundling and Sell Side Analyst Research (June 21, 2019). Available at SSRN: https://ssrn.com/abstract=3408198 or http://dx.doi.org/10.2139/ssrn.3408198

Mark H. Lang (Contact Author)

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Jedson Pinto

University of Texas at Dallas ( email )

800 West Campbell Road
Richardson, TX TX 27514
United States
972-883-5065 (Phone)

Edward Sul

George Washington University ( email )

2201 G St NW
Funger Hall 607
Washington, DC 20052
United States
2029941434 (Phone)

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