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Reputation acquisition of underwriter analysts - Theory and evidence



I examine the role of reputation in a multi-stage strategic information transmission game between an analyst and an investor. While reputation mitigates the conflict of interest in a repeated game, it may induce the biased analyst to elevate potential underperformers to the highest rating category, thus undermining the information quality of the highest message. Uncertainty about firm value helps the unbiased analyst to communicate better information in a single stage game. However, in a multi-stage game, uncertainty increases misrepresentation by the biased analyst. Empirical implications are tested. I document that 1) affiliated and unaffiliated analysts recommendations differ only in the “Strong Buy” category; 2) the underperformance of underwriter analysts’ recommendations increases with the underlying uncertainty.

Suggested Citation

  • Hefei Wang, 2009. "Reputation acquisition of underwriter analysts - Theory and evidence," Journal of Applied Economics, Universidad del CEMA, vol. 12, pages 331-363, November.
  • Handle: RePEc:cem:jaecon:v:12:y:2009:n:2:p:331-363

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    References listed on IDEAS

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    Cited by:

    1. Jorge M. Streb & Gustavo Torrens, 2011. "Meaningful talk," CEMA Working Papers: Serie Documentos de Trabajo. 443, Universidad del CEMA, revised May 2017.
    2. Jeremy Burke & Angela Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers WR-1076, RAND Corporation.
    3. Wang, Hefei, 2012. "Costly information transmission in continuous time with implications for credit rating announcements," Journal of Economic Dynamics and Control, Elsevier, vol. 36(9), pages 1402-1413.

    More about this item


    strategic information transmission; reputational cheap talk; analyst recommendations; market uncertainty;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity


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