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Does Analyst Stock Ownership Affect Reporting Behavior?

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  • Rick Johnston

    (Krannert School of Management, Purdue University, 403 W. State Street, West Lafayette, IN 47907, USA)

Abstract

An analyst who owns stock in the company she covers may be tempted to protect or enhance her personal interests. This paper examines how this potential conflict of interest affects the reporting of sell-side analysts by identifying and collecting two samples, the first from Securities and Exchange Commission (SEC) Form 144 filings, and the second from voluntary ownership disclosures. Ordered probit analyses show that owning analyst recommendations are slightly more cautious than those of the control analysts. There is little robust evidence that stock ownership leads to optimistic analyst reporting, however findings indicate that analysts who are consistently optimistic are owners. The results are consistent with a conclusion that analyst stock ownership, unlike other potential incentives, may not be a significant concern since in many cases multiple nonowning analysts also provide reports. Being an outlier potentially reduces any benefit to the owning analyst and risks her personal reputation. In the absence of a detrimental effect, ownership offers a potential benefit as a credible signal of an analyst's conviction in a company's prospects.

Suggested Citation

  • Rick Johnston, 2013. "Does Analyst Stock Ownership Affect Reporting Behavior?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1-39.
    • Handle: RePEc:wsi:rpbfmp:v:16:y:2013:i:02:n:s0219091513500082
    DOI: 10.1142/S0219091513500082
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    References listed on IDEAS

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    1. Khorana, Ajay & Servaes, Henri & Wedge, Lei, 2007. "Portfolio manager ownership and fund performance," Journal of Financial Economics, Elsevier, vol. 85(1), pages 179-204, July.
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    Cited by:

    1. Bradley, Daniel, 2018. "Discussion of “analyst stock ownership and stock recommendations”," Journal of Accounting and Economics, Elsevier, vol. 66(2), pages 499-505.
    2. Chan, Jesse & Lin, Steve & Yu, Yong & Zhao, Wuyang, 2018. "Analysts’ stock ownership and stock recommendations," Journal of Accounting and Economics, Elsevier, vol. 66(2), pages 476-498.
    3. Ahmed E. Taha & John V. Petrocelli, 2015. "Disclosures About Disclosures: Can Conflict of Interest Warnings be Made More Effective?," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 12(2), pages 236-251, June.

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    More about this item

    Keywords

    Analyst; incentives; 144; stock ownership; capital markets; G24; G29; D82; D84;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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