Analyst Impartiality and Investment Banking Relationships

Journal of Accounting Research, Vol. 43, pp. 623-650, September 2005

28 Pages Posted: 8 May 2006

See all articles by Patricia C. O'Brien

Patricia C. O'Brien

affiliation not provided to SSRN

MAUREEN F. HSIOU-WEI

affiliation not provided to SSRN

Lin Lin

National University of Singapore (NUS)

Date Written: 2005-03-25

Abstract

This study examines whether investment banking ties influence the speed with which analysts convey unfavorable news. We hypothesize that affiliated analysts have incentives to respond promptly to good news but prefer not to issue bad news about client companies. Using duration models of the time between an equity issue and the first downgrade, we find affiliated analysts are slower to downgrade from Buy and Hold recommendations and significantly faster to upgrade from Hold recommendations, in both within-analyst and within-issuer tests. We also find affiliated analysts issue recommendations sooner and more frequently after an offering than unaffiliated analysts, and that unaffiliated analysts are more likely than affiliated analysts to drop coverage of sample firms. Our findings indicate that banking ties increase analysts` reluctance to reveal negative news, and that reform efforts must carefully consider the incentives of affiliated and unaffiliated analysts to initiate coverage and convey the results of their research.

Suggested Citation

O'Brien, Patricia C. and HSIOU-WEI, MAUREEN F. and Lin, Lin, Analyst Impartiality and Investment Banking Relationships (2005-03-25). Journal of Accounting Research, Vol. 43, pp. 623-650, September 2005, Available at SSRN: https://ssrn.com/abstract=876683 or http://dx.doi.org/10.1111/j.1475-679X.2005.00184.x

Patricia C. O'Brien (Contact Author)

affiliation not provided to SSRN

No Address Available

MAUREEN F. HSIOU-WEI

affiliation not provided to SSRN

No Address Available

Lin Lin

National University of Singapore (NUS)

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

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