Are Analysts' Reports (Negatively) Influenced by Conflicts of Interest? Some Evidence from Italy

Abstract

In Continental Europe, the studies on listed companies are largely produced by multi-functional intermediaries or belong to multipurpose banking groups. The multifunctionality of these intermediaries generate some conflicts of interest. In the contraposition of diverse interests at play, on the norm, the interests of the research buyers usually are succumbed. In fact, the research activity generates revenue lower than the other types of activities can generate (i.e. merchant bank activity). In respect to such problems, solutions such as "Chinese Walls" don't seem effective. Reports could be used (and we have strong empirical evidence to prove this) in an inappropriate manner in order to generate trading fees or to support stock (prices) that are involved in an IPO or in extraordinary operations. Moreover, the risks of conflicts of interest are increased by the industry's degree of concentration and by the use of "consensus instruments".

Keywords: Analyst, Reports, Conflicts of interest, Fair disclosure

JEL Classification: G14, G24