Investment Banking and Analyst Objectivity: Evidence from Analysts Affiliated With M&A Advisors

Posted: 12 Feb 2004 Last revised: 3 Feb 2009

See all articles by Adam C. Kolasinski

Adam C. Kolasinski

Texas A&M University - Department of Finance

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

We find evidence that conflicts of interest arising from M&A relations influence analysts' recommendations, corroborating regulators' and practitioners' suspicions in a setting, i.e. M&A relations, not previously examined in research on analyst conflicts. In addition, the M&A context allows us to disentangle the conflict of interest effect from selection bias. We find that analysts affiliated with acquirer advisors upgrade acquirer stocks around M&A deals, even around all-cash deals, wherein selection bias is unlikely. Also consistent with conflict of interest, but not selection bias, target-affiliated analysts publish optimistic reports about acquirers after, but not before, the exchange ratio of an all-stock deal is set.

Keywords: Corporate Finance, Investment Banking, Analysts, Conflict of Interest

JEL Classification: G24, G29, G30, G34, G38, M41

Suggested Citation

Kolasinski, Adam C. and Kothari, S.P., Investment Banking and Analyst Objectivity: Evidence from Analysts Affiliated With M&A Advisors. Journal of Financial and Quantitative Analysis (JFQA), Vol. 43, No. 4, 2008, MIT Sloan School Working Paper No. 4575-06, Available at SSRN: https://ssrn.com/abstract=499068

Adam C. Kolasinski (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

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