Conflicts of interest in sell-side research and the moderating role of institutional investors

Journal of Financial Economics

Volumn 85, Issue 2, 2007, Pages 420-456

  Ljungqvist, Alexander ^a,f   Marston, Felicia ^b   Starks, Laura T ^c   Wei, Kelsey D ^d   Yan, Hong ^e  

^a NEW YORK UNIVERSITY   (United States)

^b UNIVERSITY OF VIRGINIA   (United States)

^c UNIVERSITY OF TEXAS AT AUSTIN   (United States)

^d UNIVERSITY OF TEXAS AT DALLAS   (United States)

^e UNIVERSITY OF SOUTH CAROLINA   (United States)

^f CEPR   (United Kingdom)

Author keywords

Analyst forecast accuracy; Analyst recommendations; Banking relationships; Conflicts of interest; Institutional investors; Investment banking

Indexed keywords

EID: 34447650608     PISSN: 0304405X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfineco.2005.12.004     Document Type: Article

References (51)

1. Agrawal, A., Chen, M.A., 2004. Analyst conflicts and research quality. Unpublished working paper. University of Alabama, Tuscaloosa, AL and University of Maryland, College Park, MD.
2. Almazan A., Hartzell J., and Starks L. Active institutional shareholders and cost of monitoring: evidence from executive compensation. Financial Management 34 (2005) 5-34
3. Antweiler W. Nested random effects estimation in unbalanced panel data. Journal of Econometrics 101 (2001) 295-313
4. Barber, B., Lehavy, R., Trueman, B. 2006. Comparing the stock recommendation performance of investment banks and independent research firms. Journal of Financial Economics, forthcoming in this issue, doi:10.1016/j.jfineco.2005.09.004.
5. Bradley, D., Jordan, B., Ritter, J., 2006. Analyst behavior following IPOs: the "bubble period" evidence. Review of Financial Studies, forthcoming.
6. Brown L.D. Predicting individual analyst earnings forecast accuracy. Financial Analysts Journal 57 (2001) 44-49
7. Brown L.D., and Mohd E. The predictive value of analyst characteristics. Journal of Accounting, Auditing and Finance 18 (2003) 625-647
8. Chen, X., 2004. Analysts' affiliation, ranking, and the market reaction to stock recommendations for IPOs. Unpublished working paper. University of British Columbia, Vancouver, Canada.
9. Chen, X., Harford, J., Li, K., 2006. Monitoring: which institutions matter? Journal of Financial Economics, forthcoming.
10. Clarke, J., Khorana, A., Patel, A., Rau, P.R., 2006. Do leopards change their spots? The impact of analyst job changes on stock coverage, recommendations, and deal flow. Journal of Financial Economics, forthcoming.
11. Clement M. Analyst forecast accuracy: do ability, resources, and portfolio complexity matter?. Journal of Accounting and Economics 27 (1999) 285-303
12. Cowen A., Groysberg B., and Healy P.M. Which types of analyst firms are more optimistic?. Journal of Accounting and Economics 41 (2006) 146-199
13. Das S., Levine C.B., and Sivaramakrishnan K. Earnings predictability and bias in analysts' earnings forecasts. The Accounting Review 73 (1998) 277-294
14. Dugar A., and Nathan S. The effects of investment banking relationships on financial analysts' earnings forecasts and investment recommendations. Contemporary Accounting Research 12 (1995) 131-160
15. Fama E., and French K. Industry costs of equity. Journal of Financial Economics 43 (1997) 153-194
16. Fama E., and MacBeth J. Risk, return, and equilibrium: empirical tests. Journal of Political Economy 71 (1973) 607-636
17. Fang, L., Yasuda, A., 2005. Analyst reputation, underwriting pressure, and forecast accuracy. Unpublished working paper. University of Pennsylvania, Philadelphia, PA.
18. Francis J., and Philbrick D. Analysts' decisions as products of multi-task environment. Journal of Accounting Research 31 (1993) 216-230
19. Frankel R.M., Kothari S.P., and Weber J. Determinants of the informativeness of analyst research. Journal of Accounting and Economics 41 (2006) 29-54
20. Gaspar J., Massa M., and Matos P. Shareholder investment horizons and the market for corporate control. Journal of Financial Economics 76 (2005) 135-165
21. Hartzell J., and Starks L. Institutional investors and executive compensation. Journal of Finance 58 (2003) 2351-2374
22. Heckman J.J. Sample selection bias as a specification error. Econometrica 47 (1979) 153-162
23. Hong H., and Kubik J.D. Analyzing the analysts: career concerns and biased earnings forecasts. Journal of Finance 58 (2003) 313-351
24. Hong H., Kubik J.D., and Solomon A. Security analysts' career concerns and the herding of earnings forecasts. RAND Journal of Economics 31 (2000) 121-144
25. Institutional Investor, 2004. The best analysts of the year, Vol. 38, Issue 10 (October), 66-95.
26. Irvine P. Analysts' forecasts and brokerage-firm trading. Accounting Review 79 (2004) 125-150
27. Iskoz, S., 2003. Bias in underwriter analyst recommendations: does it matter? Unpublished working paper. Massachusetts Institute of Technology, Cambridge, MA.
28. Jackson A. Trade generation, reputation, and sell-side analysts. Journal of Finance 60 (2005) 673-717
29. Jacob J., Lys T., and Neale M. Expertise in forecasting performance of security analysts. Journal of Accounting and Economics 28 (1999) 51-82
30. Jacob, J., Rock, S., Weber, D., 2003. Do analysts at independent research firms make better earnings forecasts? Unpublished working paper. University of Colorado, Boulder, CO.
31. Kolasinski, A., Kothari, S.P., 2004. Investment banking and analyst objectivity: evidence from forecasts and recommendations of analysts affiliated with M&A advisors. Unpublished working paper. Massachusetts Institute of Technology, Cambridge, MA.
32. Kothari S.P. Discussion of "The relation between analysts' forecasts of long-term earnings growth and stock price performance following equity offerings". Contemporary Accounting Research 17 (2000) 33-39
33. Kothari S.P. Capital markets research in accounting. Journal of Accounting and Economics 31 (2001) 105-231
34. Lim T. Rationality and analysts' forecast bias. Journal of Finance 56 (2001) 369-385
35. Lin H., and McNichols M. Underwriting relationships, analysts' earnings forecasts and investment recommendations. Journal of Accounting and Economics 25 (1998) 101-127
36. Ljungqvist A., Marston F., and Wilhelm W.J. Competing for securities underwriting mandates: banking relationships and analyst recommendations. Journal of Finance 61 (2006) 301-340
37. Malmendier, U., Shanthikumar, D., 2004. Are investors naïve about incentives? Unpublished working paper. Stanford University, Stanford, CA.
38. Matsumoto D. Management's incentives to avoid negative earnings surprises. Accounting Review 77 (2002) 483-514
39. McNichols M., and O'Brien P. Self-selection and analyst coverage. Journal of Accounting Research 35 (1997) 167-199
40. Megginson W.L., and Weiss K.A. Venture capitalist certification in initial public offerings. Journal of Finance 46 (1991) 879-903
41. Michaely R., and Womack K. Conflict of interest and credibility of underwriter analyst recommendations. Review of Financial Studies 12 (1999) 653-686
42. Mikhail M.B., Walther B., and Willis R.H. Does forecast accuracy matter to security analysts?. Accounting Review 74 (1999) 185-200
43. O'Brien P.C. Analysts forecasts as earnings expectations. Journal of Accounting and Economics (1988) 187-221
44. O'Brien, P. C., Bhushan, R., 1990. Analysts following and institutional ownership. Journal of Accounting Research (Suppl.), 55-76.
45. O'Brien P.C., McNichols M., and Lin H. Analyst impartiality and investment banking relationships. Journal of Accounting Research 43 (2005) 623-650
46. Parrino R., Sias R., and Starks L. Voting with their feet: institutional ownership changes around forced CEO turnover. Journal of Financial Economics 68 (2003) 3-46
47. Qiu, L., 2005. Which institutional investors monitor? Evidence from acquisition activity. Unpublished working paper. Brown University Providence, RI.
48. Richardson S., Teoh S.H., and Wysocki P. The walkdown to beatable analyst forecasts: the role of equity issuance and insider trading incentives. Contemporary Accounting Research 21 (2004) 885-924
49. Stickel S. Reputation and performance among security analysts. Journal of Finance 47 (1992) 1811-1836
50. Trueman B. Analyst forecasts and herding behavior. Review of Financial Studies 7 (1994) 97-124
51. Welch I. Herding among security analysts. Journal of Financial Economics 58 (2000) 369-396