Analyst Conflicts and Research Quality

46 Pages Posted: 26 Jul 2006

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Mark A. Chen

Georgia State University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: August 2005


This paper examines whether the quality of stock analysts' forecasts is related to conflicts of interest from investment banking and brokerage. We consider four aspects of forecast quality: accuracy, bias and revision frequency of quarterly earnings per share (EPS) forecasts, and relative optimism in long-term earnings growth (LTG) forecasts. Using a unique dataset that contains the annual revenue breakdown of analysts' employers among investment banking, brokerage, and other businesses over the 1994-2003 period, we uncover two main findings. First, accuracy and bias in quarterly forecasts appear to be unrelated to conflict magnitudes, after controlling for forecast age, firm resources and analyst characteristics. Second, relative optimism in LTG forecasts and the frequency of revision of quarterly EPS forecasts are positively related to the importance of brokerage business to analysts' employers. Additional tests suggest that the frequency of quarterly forecast revisions is positively related to analysts' trade generation incentives. Our findings suggest that contrary to popular belief, conflicts from brokerage, rather than from investment banking, play an important role in shaping analysts' forecasting behavior.

Keywords: Stock analysts, Security analysts, Analyst conflicts, Corporate governance, Analyst forecasts, Wall Street research, Brokerage research, Conflicts of interest

JEL Classification: G24, G28, G34, G38, K22, M41

Suggested Citation

Agrawal, Anup and Chen, Mark, Analyst Conflicts and Research Quality (August 2005). Robert H. Smith School Research Paper No. RHS 06-042, EFA 2004 Maastricht, Available at SSRN: or

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)


Mark Chen

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States

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