Investment Banking and Analyst Objectivity: Evidence from Analysts Affiliated With M&A Advisors
Posted: 12 Feb 2004 Last revised: 3 Feb 2009
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
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