27 Pages Posted: 7 Jul 2004 Last revised: 21 Aug 2009
Date Written: August 20, 2009
In this paper, we examine the impact of NASD Rule 2711, NYSE Rule 472, and the Global Research Settlement on the recommendation performance of independent, affiliated, and unaffiliated analysts. We find that analysts from all three types of institutions issued fewer strong buys following these regulations designed to separate investment banking and equity research. Affiliated analysts were less likely to issue innovative recommendations. While downgrades became more prevalent following the regulations, they were significantly less informative. Independent research firms set up after the Global Research Settlement are of inferior quality; they issue more optimistic and less innovative recommendations that generate lower announcement period returns than independent firms existing prior to the Settlement. Our overall findings question whether investors will be better served via the shift in equity research to analysts at independent research firms.
Keywords: Analysts, Investment banks, Independent Research institutions, Conflicts of interest, Analyst recommendations, Global Settlement
JEL Classification: G24, G28
Suggested Citation: Suggested Citation
Clarke, Jonathan and Khorana, Ajay and Rau, P. Raghavendra and Patel, Ajay, Independents' Day? Analyst Behavior Surrounding the Global Settlement (August 20, 2009). Available at SSRN: https://ssrn.com/abstract=562181 or http://dx.doi.org/10.2139/ssrn.562181