Regulation Fair Disclosure and the Credibility of Underwriter Analyst Recommendations

39 Pages Posted: 5 Jan 2005

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Hassan Tehranian

Boston College - Department of Finance

Atakan Yalcin

Ozyegin University

Date Written: November 2004

Abstract

Regulation Fair Disclosure (RegFD) prohibits selective disclosure of material non-public information by public companies to privileged individuals (such as favored research analysts or, in general, securities markets professionals) and requires broad, non-exclusionary disclosure of such information. We examine firms' stock price reactions to investment recommendation changes from two distinct groups of analysts around the passage of RegFD. We find that RegFD has had a significant impact regardless of whether recommendation changes were announced by affiliated analysts (those who are affiliated with investment banks that underwrite securities for companies) or unaffiliated analysts. Further, the results suggest that investors reacted more significantly to recommendation changes by affiliated analysts than to those by unaffiliated analysts prior to the implementation of RegFD. However, these significant differences are not present after the passage of RegFD.

Keywords: Analyst recommendations, affiliated, unaffiliated, regulation

JEL Classification: G14, G18, G24

Suggested Citation

Cornett, Marcia Millon and Tehranian, Hassan and Yalcin, Atakan, Regulation Fair Disclosure and the Credibility of Underwriter Analyst Recommendations (November 2004). Available at SSRN: https://ssrn.com/abstract=642563 or http://dx.doi.org/10.2139/ssrn.642563

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

Atakan Yalcin (Contact Author)

Ozyegin University ( email )

Nisantepe Mahallesi
Alemdag, Cekmekoy
Istanbul, 34794
Turkey
+90-216-564-9587 (Phone)
+90-216-564-9045 (Fax)

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