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Sell†Side Analyst Research and Reported Conflicts of Interest

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  • Daniel Arand
  • Alexander G. Kerl

Abstract

Using a unique dataset of conflicts of interest reported by a large investment bank, we examine the relationship between conflicts of interests and sell†side analysts’ behaviour in setting target prices and stock recommendations. We demonstrate that the aggregate number of simultaneous business ties with a subject company is positively associated with optimism in target prices and recommendations. Furthermore, the results provide some indication that stocks for which conflicts of interests exist earn lower risk†adjusted returns than unconflicted stocks. However, we find no evidence that investors discount the value of sell†side analysts’ research with respect to the prevailing level of conflicts.

Suggested Citation

  • Daniel Arand & Alexander G. Kerl, 2015. "Sell†Side Analyst Research and Reported Conflicts of Interest," European Financial Management, European Financial Management Association, vol. 21(1), pages 20-51, January.
    • Handle: RePEc:bla:eufman:v:21:y:2015:i:1:p:20-51
    DOI: 10.1111/j.1468-036X.2012.00661.x
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    Cited by:

    1. Galanti, Sébastien & Vaubourg, Anne Gaël, 2017. "Optimism bias in financial analysts' earnings forecasts: Do commissions sharing agreements reduce conflicts of interest?," Economic Modelling, Elsevier, vol. 67(C), pages 325-337.
    2. He, Feng & Ma, Yaming, 2019. "Do political connections decrease the accuracy of stock analysts' recommendations in the Chinese stock market?," Economic Modelling, Elsevier, vol. 81(C), pages 59-72.
    3. Wan Nordin Wan-Hussin & Ameen Qasem & Norhani Aripin & Mohd Shazwan Mohd Ariffin, 2021. "Corporate Responsibility Disclosure, Information Environment and Analysts’ Recommendations: Evidence from Malaysia," Sustainability, MDPI, vol. 13(6), pages 1-27, March.
    4. Dachen Sheng & Heather Montgomery, 2023. "What Triggers Corporate Site Visits, and Do Investors Care? A Comparison of Buy-Side and Sell-Side Analyst Site Visits in China," IJFS, MDPI, vol. 11(1), pages 1-20, January.

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