Brokerage Relationships and Analyst Forecasts: Evidence from the Protocol for Broker Recruiting

Review of Accounting Studies, Forthcoming

46 Pages Posted: 11 Oct 2021 Last revised: 15 Sep 2022

See all articles by Braiden Coleman

Braiden Coleman

University of Georgia - Terry College of Business

Michael S. Drake

Brigham Young University - Marriott School

Joseph Pacelli

Harvard University - Business School (HBS)

Brady J. Twedt

University of Oregon - Lundquist College of Business

Date Written: October 6, 2021

Abstract

In this study, we offer novel evidence on how the nature of brokerage-client relationships can influence the quality of equity research. We exploit a unique setting provided by the Protocol for Broker Recruiting to examine whether relaxed broker non-compete agreement (NCA) enforcement generates spillover effects on sell-side analysts. Entry into this agreement reassigns ownership of the client relationship from the brokerage house to individual brokers, potentially generating a greater standard of care. Using a generalized difference-in-difference research design, we provide evidence consistent with brokers reducing pressure on analysts to produce optimistic research following protocol entry. This effect is concentrated among less experienced and non-All Star analysts, who previously may have faced the greatest pressures to sacrifice objectivity. Additionally, we find that analysts issue more accurate forecasts and generate reports with heightened market reactions following protocol entry. Our collective evidence sheds new light on how the nature of brokerage relationships can influence analysts’ research production.

Keywords: analysts, forecasts, bias, protocol

JEL Classification: G14, G24

Suggested Citation

Coleman, Braiden and Drake, Michael S. and Pacelli, Joseph and Twedt, Brady J., Brokerage Relationships and Analyst Forecasts: Evidence from the Protocol for Broker Recruiting (October 6, 2021). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3937471

Braiden Coleman (Contact Author)

University of Georgia - Terry College of Business

Terry College of Business - Tull School of Account
415 South Hull Street
Athens, GA 30602
United States

Michael S. Drake

Brigham Young University - Marriott School ( email )

United States

Joseph Pacelli

Harvard University - Business School (HBS) ( email )

Boston, MA 02163
United States

Brady J. Twedt

University of Oregon - Lundquist College of Business ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
101
Abstract Views
357
rank
378,016
PlumX Metrics