MiFID II Unbundling and Sell Side Analyst Research

58 Pages Posted: 26 Jun 2019 Last revised: 19 Jun 2023

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 14, 2023

Abstract

We examine broad effects of MiFID II, which mandated unbundled pricing of analyst research in the European Union beginning in 2018. We find significant reductions in sell-side analyst following, particularly for firms for which the marginal analyst was less important (larger, older, less volatile firms with greater coverage and more accurate forecasts). High quality analysts (more accurate, experienced, and in positions of seniority) were more likely to leave the sell-side and move to the buy-side, while remaining sell-side analysts increased efforts to make their forecasts more informative (more accurate, more detailed, and more likely to include informative recommendations resulting in larger stock price responses). Firms responded to a loss of sell-side coverage with more frequent, forward-looking, and informative investor relations events, especially for firms that lost the most coverage. Our results support recent theoretical analysis predicting that unbundling had significant implications for sell-side research, buy-side research, and firm responses.

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 14, 2023). Journal of Accounting & Economics (JAE), Forthcoming, 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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