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When Do Banks Listen to Their Analysts? Evidence from Mergers and Acquisitions

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  • David Haushalter
  • Michelle Lowry

Abstract

We examine the conflicts of interest and the flow of information between divisions of financial institutions. Using data on analyst recommendations and stockholdings of investment banks advising acquirers in mergers, we find evidence that information from investment banking flows to other divisions of the bank. Specifically, following a merger announcement, changes in a bank's stockholdings of the acquirer are positively associated with changes in recommendations by its analyst. This relationship, however, does not exist before the merger announcement. Additional tests show that the relationship between stockholdings and recommendations following a merger announcement is strongest when conflicts of interest for analysts are likely the smallest. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

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  • David Haushalter & Michelle Lowry, 2011. "When Do Banks Listen to Their Analysts? Evidence from Mergers and Acquisitions," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 321-357.
  • Handle: RePEc:oup:rfinst:v:24:y:2011:i:2:p:321-357
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    File URL: http://hdl.handle.net/10.1093/rfs/hhq087
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    Cited by:

    1. Fecht, Falko & Hackethal, Andreas & Karabulut, Yigitcan, 2013. "Is proprietary trading detrimental to retail investors?," Discussion Papers 42/2013, Deutsche Bundesbank.
    2. repec:bla:stratm:v:38:y:2017:i:12:p:2486-2507 is not listed on IDEAS

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