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Independents' Day? Analyst Behavior Surrounding the Global Settlement

27 Pages Posted: 7 Jul 2004 Last revised: 21 Aug 2009

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business

Ajay Khorana

Georgia Institute of Technology - Finance Area

P. Raghavendra Rau

University of Cambridge

Ajay Patel

Wake Forest University, School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2009

Abstract

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

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

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4929 (Phone)
404-894-6030 (Fax)

HOME PAGE: http://mgt.gatech.edu/directory/clarke.html

Ajay Khorana

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Ajay Patel

Wake Forest University, School of Business ( email )

1834 Wake Forest Road
Building 60, Farrell Hall
Winston-Salem, NC 27106
United States
336-758-5575 (Phone)
336-758-4514 (Fax)

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